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Amounts will be treated as subject to a reduction of tax if they are:
- not assessable
- subject to a concessional rate of tax
- not used as a basis for determining the taxable income, taxable profits or tax base, as the case may be, or in establishing the tax liability of an entity - for example, amounts derived by foreign sales corporations located in certain countries which are taxed on a cost-plus basis
- reduced other than for normal expenses or losses - for example, reduced on an arbitrary or notional basis in accordance with a statutory or administrative formula or
- subject to other tax benefits which would have the effect of reducing the amount of tax otherwise payable.
What does 'normal expenses and losses' mean?
Normal expenses and losses would include:
- capital or revenue amounts taxed in a broad-exemption listed country
- prior year capital or revenue expenses
- losses, incurred by a group company, which have been transferred to the CFC.
For the purposes of the above tests, a company is treated as belonging to the same company group as another company if one of the companies is a subsidiary of the other or if they are both subsidiaries of a third company. Broadly, a company is a subsidiary of another company if the other company holds 60% or more of the total rights to distributions of profits from the company.
Companies in a chain of subsidiary companies are treated as group companies.
A company which transfers losses to a CFC must also be a CFC and be resident in the same broad-exemption listed country as the CFC to which the losses were transferred. The following conditions must also be satisfied:
- the broad-exemption listed country must allow the transfer
- both companies must be CFCs
- the company that incurred the loss must have been a CFC in relation to the same attributable taxpayer during the period from when the loss was incurred until the end of the period in which the loss is offset.
Loss transfers from a group company to a branch of an Australian company in a broad-exemption listed country are also available if that country permits the loss transfer and the group company is a CFC resident in the broad-exemption listed country.
What are 'other tax benefits'?
A tax benefit includes a credit, rebate or other tax concession provided for income or profits, other than a credit or rebate for tax payable under a law of another country.
Last modified: 05 Dec 2006QC 17522