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Brendon Lamers - KPMG - Understanding Key Tax Implications Faced By a Shifting Regulatory Framework
 

Brendon Lamers - KPMG - Understanding Key Tax Implications Faced By a Shifting Regulatory Framework

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Brendon Lamers delivered the presentation at 2014 National PPP Summit. ...

Brendon Lamers delivered the presentation at 2014 National PPP Summit.

The National PPP Summit is the leading annual event for industry stakeholders to gather and discuss the issues across the national and global PPP markets. The 2014 agenda reviewed current and emerging financing models as well as showcasing best practice strategies for the procurement process, risk transfer and whole-of-life project management.

For more information about the event, please visit: http://www.informa.com.au/PPPSummit14

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    Brendon Lamers - KPMG - Understanding Key Tax Implications Faced By a Shifting Regulatory Framework Brendon Lamers - KPMG - Understanding Key Tax Implications Faced By a Shifting Regulatory Framework Presentation Transcript

    • National PPP Summit Understanding key tax implications faced by a shifting regulatory framework 4 June 2014
    • 1 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Introduction ■ Exploring the current changes in relation to tax thinking ■ Understanding the impact of legal reform ■ How will these impact directly on Financial Close process?
    • 2 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Recent and planned tax reforms relevant for PPPs ■ The Federal Government has announced / implemented: – Tax loss incentives for designated infrastructure projects – Reforms to the MIT regime – Thin capitalisation – Reforms to the taxation of trusts (in particular the abolishment of the “20% exempt entity” rule) – Potential Federal Government incentives to support State asset sales – Significant funding for road projects
    • Tax loss incentives for DIPs
    • 4 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Tax loss incentives for DIPs ■ On 29 June 2013, the government enacted legislation to provide tax incentives for entities to carry on nationally significant projects. Benefits of the incentives are: – Exemption from the continuity of ownership and same business test for eligible companies – Exemption from trust loss and bad debt deduction tests for eligible fixed trusts – Uplift of the value of the tax losses at the government long term bond rate which may result in an increased internal rate of return on the investment ■ A tax incentive for nationally significant infrastructure projects
    • 5 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Tax loss incentives for DIPs Why is this important? State Finance SPV Construction paymentsPurchase of future income stream Builder Operator Lease/Licence payments Project Trust Banks
    • 6 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Tax loss incentives for DIPs ■ Eligibility: – DIP entity: fixed trust or company carrying on a single infrastructure project – Infrastructure project must be a DIP ■ To get final designation the project must: – Be nationally significant – Be on the Infrastructure Priority List as “Ready to Proceed” – Not have commenced – Financial Close has occurred or is imminent ■ Total capex limit on projects granted DIP status not to exceed $25 billion
    • 7 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Tax loss incentives for DIPs ■ Projects are included on Infrastructure Australia’s National Priority List of projects if they are: – Above a capital expenditure threshold of $100 million; or – A Regional Infrastructure Fund project, a flagship project or a project that demonstrates unique national interest qualities ■ Projects will be ranked (and published) and assessed on a range of criteria as follows: – The ratio of economic benefits to economic costs – The corporate governance arrangements in place – The availability of the project to multiple users – The benefit to the community ■ Difficult to bid
    • MIT regime and reforms
    • 9 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. The MIT regime and reforms ■ MIT concessionary withholding tax rate on fund payments ■ In November 2013, the Treasurer confirmed measures to remove uncertainty. These include: – Specific taxation of “regime MITs” – Introduction of specific attribution rules for regime MITs to determine tax liabilities – Clarifying application of MIT rules to pension funds
    • 10 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. The MIT regime and reforms ■ 2014 Federal Budget announcement confirmed the intention to introduce the new MIT regime, with an Exposure Draft to be released for public consultation in June 2014. Consultation is currently occurring with key players. ■ However, the introduction of the new regime has been deferred until 1 July 2015 to accommodate this consultation and the need for systems changes by the ATO and industry.
    • 11 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. The MIT regime and reforms ■ How do and how will these rules actually work? ■ What are the important touchstones? ■ What will be the impact (if any) to infrastructure investors?
    • 12 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. The MIT regime and reforms Pension funds and the MIT regime ■ Trustees of MITs generally determined withholding tax by address of the non- resident recipient ■ ATO ruled: foreign pension funds investing via an interposed trust are prevented from receiving MIT concessionary treatment ■ Feb 2013: Government announced amendments
    • 20% exempt rule
    • 14 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. 20% exempt rule ■ Purpose of rule ■ Since BoT 2009 report, a series of reports, discussion papers, media releases and announcements have been made deferring the effective date to 1 July 2014 ■ What does this mean for infrastructure projects and investments? Where are we now?
    • 15 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. 20% exempt rule Investors Construction FPP Aus super >20% Project Trust Operations
    • Thin capitalisation
    • 17 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Thin capitalisation ■ Reforms to the thin capitalisation rules to apply to income years commencing on or after 1 July 2014: – Reduction in safe harbour gearing ration from 75% to 60% – Worldwide gearing ratio reduced from 120% to 100%
    • 18 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Thin capitalisation ■ Lowering of the safe harbour debt amount to 60% – Impact on infrastructure projects (brownfield mostly) ■ Arm’s length debt test – Infrastructure projects generally highly geared and often funded by third party debt – Review of arm’s length debt test welcomed but difficult – Expect greater reliance on arm’s length debt test with the tightening of safe harbour debt test
    • Other potential / proposed reforms
    • 20 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Other potential / proposed reforms ■ Reforms to NTER: reimbursements to States for loss of payments under NTER upon privatisation of State owned assets / businesses ■ Tax implications: – How will these measures work? – Based upon historical tax or estimated go forward?
    • Change of interpretation by the ATO
    • 22 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Change of interpretation by the ATO ■ Insolvency remote special purpose entity exemption: section 820-39 ■ Part IVA and securitised lease / licence structures
    • 23 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Insolvency remote special purpose entity exemption: s820-39 ■ Section 820-39 provides an exemption from thin capitalisation if: – The entity is established for the purpose of managing economic risk – Debt interests in the entity > 50% of total assets – The entity is an insolvency remote special purpose vehicle
    • 24 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Insolvency remote special purpose entity exemption: s820-39 Third party debt State Finance SPV Construction payments Purchase of future income stream Builder Operator Lease/Licence payments EquityUnrelated shareholder Project Trust
    • 25 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Insolvency remote special purpose entity exemption: s820-39 ■ Insolvency remote criteria of internationally recognised ratings agencies do not require a SPE to be established for the purposes of carrying on only securitisation activities ■ TD 2012/D11 withdrawn on 8 May 2012. Reissued on 12 March with TD 2014/D8 and is substantially different to TD 2012/D11 ■ Impact on securitised lease / licence structures – More precaution being taken by investors and arrangers – Application for private rulings to be accompanied by evidence of insolvency remoteness of an entity (e.g. legal opinions etc)
    • 26 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Part IVA and securitised lease / licence structures ■ Increased ATO scrutiny ■ ATO considered whether there was a tax benefit when compared to a traditional Division 250 structure ■ ATO confirmation that Part IVA no longer applies to many securitised lease / licence structures ■ Division 250 structure not commercially (nor often legally) viable
    • Conclusions
    • 28 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Conclusions ■ Reforms are generally in favour of infrastructure investment ■ Effectiveness of reforms will require consultation with ATO pre-enactment to allow sensible interpretation ■ Questions?
    • 29 © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. Thank you Name Experience Brendon Lamers Tax Partner T: +61 2 9335 7021 E: blamers1@kpmg.com.au Brendon has over 15 years experience in providing taxation advice to a variety of financial institutions, foreign pensions infrastructure and agriculture funds, and domestic and multinational corporate clients. ■ He has worked on the IPO of Queensland Rail and PPP related bids, including running the tax workstream of Perth Stadium, North West Rail, VCCC, LEAP Housing and Brisbane Airport Link. ■ He has worked extensively for various financial and infrastructure investors. Recent examples including Brookfields, Partners Group, Citi Infrastructure Partners, Plenary Group, CDPQ and Public Sector Pension Investment Board. ■ He recently worked on the unsuccessful bids for Queensland Motorways and Port of Newcastle and the acquisition of Thakral by Brookfields, the acquisition of Centrebet by Sportingbet and the acquisition of Charter Hall Office Trust by PSPIB and GIC. ■ His major clients include the Leighton Group, Caisse de depot et placement du Quebec, Charter Hall, DP World and Plenary Group.
    • The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. © 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International.