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Winning the Away Game: the challenge for Australia-based global companies

A morning spent discussing tax policy may not be everybody's Woodstock. But I have a special interest in the topic.

As interested as I am in taxation policy - and I mean that in all seriousness - I'm more interested in how Government and business can work together to make Australia more competitive on the world stage.

" US global firms contribute 25 per cent of its total economic output despite making up less than 1 per cent of firms."
Mike Smith, Chief Executive Officer, ANZ

Our report 'Winning the Away Game', the latest in our series of insight reports, emphasises the immediate economic upside from a competitive tax regime for Australian multinationals.

Launch of Winning the Away Game report

As part of our research, we asked Independent Economics to assess the benefits of a recommendation from the Board of Taxation 12 years ago for a non-refundable foreign tax credit of 20 per cent for dividends sourced from foreign income.

The analysis concluded this reform would generate a net economic benefit of more than AU$1 billion per year, while also resulting in an additional AU$300 billion of foreign assets owned by Australians.

And based on experience from other similar-sized jurisdictions, these economic benefits would likely be realised in around two years from introducing the reform.

However, the structure of Australia's out-dated taxation rules means our businesses are largely consigned to playing in a domestic-only game in a market of just 20 million people.

And with Asia's status as the world's engine for economic growth firmly established…it seems a missed opportunity not to take our talented Australian organisations to the world.

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The benefits are huge. You only need to look to the US to see the benefit an effective taxation policy can have on the competitiveness of a nation.

We know US global firms contribute 25 per cent of its total economic output despite making up less than 1 per cent of its firms.

In fact, McKinsey estimates for every dollar a US international firm invests abroad, it yields between US$1.12 and US$1.14 in additional economic activity in the US.

And as global trade continues to develop - supported in our region from Asia's industrialisation and urbanisation – it's becoming even more important for Australian-based companies to remain here but invest in their offshore facilities.

We do have stand-out examples of Australian-based companies that are doing this well: Amcor, Cochlear and Computershare to name a few.

These organisations have invested in overseas growth, rewarding their shareholders over the long-term.

But the only problem as I see it is there are too few names on this list - and it's the same names repeatedly cited.

Why do not have the likes of Atlassian on the list.

Here's a young technology company taking on the world but they moved to Britain of all places given it has better access to capital and a better tax structure for international firms.

We can do worse than look to Britain for guidance.

Australia has taken its eye off the ball. Our outward direct investment has fallen steadily over the last decade, compared with the OECD average.

While for much of the 1990s and early 2000s we benefitted from the resources boom, we need to shift focus to the industries of tomorrow such as technology and services.

This will complement our already strong position in tourism, agriculture and of course natural resources and help generate further income and jobs.

It's clear our companies have a significant opportunity on the horizon but we need to align our tax system to encourage the further investment needed if we want to develop an economy fit for the 21st century.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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