tag:theconversation.com,2011:/global/topics/shareholder-dividend-2600/articlesShareholder dividend – The Conversation2017-12-15T04:14:30Ztag:theconversation.com,2011:article/891532017-12-15T04:14:30Z2017-12-15T04:14:30ZCBA admissions will make class action easier but shareholders still have a lot to prove<p>The Commonwealth Bank of Australia recently admitted it breached Australia’s anti-money laundering and counter-terrorism financing laws. The <a href="http://www.abc.net.au/news/2017-12-13/cba-breached-money-laundering,-counter-terrorism-laws/9257224">admissions</a> in its response to allegations from the Australian Transaction Reports and Analysis Centre (AUSTRAC) will make it easier for shareholders to prove their claims of misleading and deceptive conduct in a class action launched against the bank in October.</p>
<p>CBA’s willingness to admit what it has done also signals a possibility the bank might resolve the class action through a settlement. In the meantime shareholders still need to prove their claims, even if some are on stronger footing thanks to the CBA.</p>
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<p><strong><em>Read more: <a href="http://insurance.moray.com.au/publication/in-the-matter-of-hih-insurance-limited-in-liquidation-ors-2016-nswsc-482/">APRA could have investigated CBA years ago: experts</a></em></strong></p>
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<p><a href="http://www.austrac.gov.au/sites/default/files/20170803-concise-statement-cba-s.pdf">AUSTRAC’s first lot of allegations</a> noted CBA failed to comply with its obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 with respect to more than 778,000 accounts. The bank is obliged to assess the risk of, monitor and report suspicious deposit activity that was being conducted through intelligent deposit machines (IDMs). These machines are ATMs that accept cash deposits that are immediately available in the depositor’s account. </p>
<p>AUSTRAC then amended its complaint on December 14, 2017, to add a further 100 alleged contraventions.</p>
<p><a href="https://www.commbank.com.au/content/dam/caas/newsroom/docs/Concise%20Statement%20in%20Response%20-%2013%20December%202017_SIGNED_20171213_4.25pm.PDF">CBA’s response</a> to the original allegations admits that it did fail to comply with the Act in certain respects and accepts that these contraventions do subject it to a civil penalty. But the bank denies other alleged contraventions. </p>
<p><a href="https://www.mauriceblackburn.com.au/about/media-centre/media-statements/2017/cba-shareholders-to-file-federal-court-class-action-today/">Law firm Maurice Blackburn</a> filed a class action on behalf of shareholders with CBA shares between July 1, 2015 and August 3, 2017. The shareholders allege that CBA – and over a dozen of its officers and directors – knew or should have known about the non-compliance. They argue this failure to disclose or rectify the situation caused loss once the share price fell after AUSTRAC made CBA’s non-compliance public. </p>
<p>None of this is proved solely by the fact that CBA admitted committing some breaches of the Act. The additional claims brought by AUSTRAC this week do not alter the existing shareholder claims, but they may see the scope of the class action increased.</p>
<h2>What CBA admits and what shareholders need to prove</h2>
<p>CBA’s admissions may impact the efficiency and conduct of the class action, but they are unlikely to affect what shareholders need to prove. CBA’s response admits much of the conduct that contravenes the Act, but that’s not the same as an admission of liability in relation to the quite different legal claims made by the shareholders.</p>
<p>CBA admits that it did not conduct a proper risk assessment of its IDMs until more than three years after the machines had been put into operation. The bank also admits that it did not conduct adequate monitoring of IDM deposits, for example by introducing daily deposit limits. This is despite having assessed the risk of IDMs being used for money laundering or terrorism financing as high. </p>
<p>CBA further admits that in over 53,500 separate instances, it did not file reports whenever a deposit of more than A$10,000 was made, as required by the Act. It also failed to file either complete or timely reports of suspicious account activity in nearly 100 instances.</p>
<p>But the shareholders’ claims are based on something different: CBA’s non-compliance with securities disclosure rules and on misleading and deceptive conduct by CBA. </p>
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Read more:
<a href="https://theconversation.com/naming-and-shaming-bankers-may-be-satisfying-but-could-backfire-74307">Naming and shaming bankers may be satisfying, but could backfire</a>
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<p>In order to win in the class action, the shareholders will have to prove the elements of the claims they allege, including that the lack of AUSTRAC compliance was the cause of the drop in CBA share price and that the plaintiffs suffered loss as a result of that drop. </p>
<p>The test for the link between non-disclosure and loss, and the way to calculate the amount of that loss, has not been determined in the class action cases so far. However, courts have heard similar shareholder arguments to those raised by the CBA shareholders in other cases, so the issues raised aren’t new. </p>
<p>For example, in the case <a href="http://insurance.moray.com.au/publication/in-the-matter-of-hih-insurance-limited-in-liquidation-ors-2016-nswsc-482/">surrounding the liquidation of HIH Insurance Limited</a>, Justice Brereton of the Supreme Court of New South Wales held that shareholders rely on the share price as an accurate reflection of share value. Accordingly, when corporate misconduct inflates the share price, the corporation indirectly causes shareholders to suffer loss.</p>
<p>A key issue the CBA class action will be whether CBA’s non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act, and the subsequent AUSTRAC civil penalty proceedings, impacted the share price and to what extent.</p><img src="https://counter.theconversation.com/content/89153/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Legg receives research funding from IMF Bentham Ltd and the Law Society of New South Wales. He is a member of the Law Council of Australia's Class Actions Committee and a director of the Australian Pro Bono Centre. He consults to the law firm Jones Day. </span></em></p><p class="fine-print"><em><span>James D Metzger does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The CBA’s response to AUSTRAC’s claims means shareholders will be assisted in part of their class action claims, but a lot still needs to be proved.Michael Legg, Professor of Law, UNSW SydneyJames D Metzger, Scholarly Teaching Fellow in Civil Procedure, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/737662017-03-03T00:44:38Z2017-03-03T00:44:38ZThree reasons businesses are paying higher dividends rather than investing<figure><img src="https://images.theconversation.com/files/158840/original/image-20170301-29906-5utgwp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">More than A$72 billion has been paid in dividends in 2016-17.</span> <span class="attribution"><span class="source">AAP/Dean Lewins</span></span></figcaption></figure><p>Typically, low interest rates, together with record profits, would create an environment in which businesses would be happy to invest in new projects – providing a boost to economic growth and jobs. Unfortunately, Australians do not appear to be living in “typical” times. Rather than lifting investment, businesses <a href="http://www.afr.com/markets/asx-200-dividend-count-heads-to-record-72bn-on-resources-comeback-20170224-gukd0j">have chosen</a> to return cash to shareholders in the form of <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/5676.0Main+Features1Dec%202016?OpenDocument">record dividends</a> and share buybacks.</p>
<p>There are many possible reasons – including political uncertainty – why businesses are seemingly ignoring the supportive economic environment and paying such large dividends (A$72 billion in 2016-17) instead of reinvesting in growth opportunities. </p>
<p>Three likely candidates are firm commitments to set dividend payouts, the sustainability of current commodity prices, and a perceived lack of investment opportunities.</p>
<p>This is not necessarily bad for the economy. Private investors will be happy to have more cash in their pocket, and at least some of the extra cash handed to shareholders will result in increased consumption, which may encourage businesses to invest in the future.</p>
<h2>Three key reasons</h2>
<p>Having come to the end of a major investment cycle, many resources companies are reluctant, for example, to build more mines and create more supply, as this creates downward pressure on prices. These companies have committed to a set dividend payout ratio. Mining giant <a href="http://www.afr.com/business/mining/bhp-billitons-bumper-profit-lifts-dividends-20170221-guhoeu">BHP Billiton</a>, for example, promises to pay its shareholders at least 50% of underlying profits.</p>
<p>The high level of dividends in the mining sector probably says something about the sustainability of current commodity prices. Despite extra supply from a number of additional mines (and increased production from existing mines) being available in 2016, the iron ore price <a href="https://thewest.com.au/business/fmg-rewards-investors-with-sharp-rise-in-profits-ng-b88394202z">has surged</a> to more than US$90 per tonne.</p>
<p>However, for mining companies to justify investing the billions of dollars required for a new mine, they need to have some comfort that such prices will persist. While the majority of forecasters have revised up their estimates, the consensus is still for the price to <a href="http://www.theaustralian.com.au/business/mining-energy/ord-minnett-lifts-2017-iron-ore-price-forecast/news-story/63a174477dda6339e5b876faaf9b57fb">fall below</a> US$60 per tonne by 2018. </p>
<p>The third reason is a perceived lack of investment opportunities. One explanation for this may be a reduction in infrastructure spending by state and federal governments owing to <a href="http://www.investordaily.com.au/markets/40402-lack-of-projects-stifling-infrastructure-investment">fiscal constraints</a>.</p>
<p>If businesses cannot identify a project that provides an adequate return on capital, then they are better off returning cash to shareholders. <a href="http://www.investopedia.com/articles/02/010902.asp">Corporate finance theory</a> would suggest this is good. </p>
<h2>What about political uncertainty?</h2>
<p>Perhaps the largest drag on investment results from the high level of uncertainty about the geopolitical environment. </p>
<p>Domestically, there appears to be little policy direction from a Coalition government wary of a rise in populism. </p>
<p>Regionally, Reserve Bank Governor <a href="http://www.rba.gov.au/speeches/2017/sp-gov-2017-02-24.html">Phillip Lowe</a> has identified possible risks in China owing to a continued build-up of debt. </p>
<p>And, globally, the Trump administration is perhaps the biggest cause of uncertainty. </p>
<p>In the months since Donald Trump’s victory in the US presidential election, global sharemarkets have rallied strongly. Australia’s market has been no different.</p>
<p>The All Ordinaries index has risen by 10% in the past quarter. However, the key to maintaining high prices is earnings growth. </p>
<p>The February earnings season did not disappoint in this respect. For the last quarter of 2016, Australian businesses reported the <a href="http://www.afr.com/news/economy/business-profits-shatter-expectations-inventories-hold-ground-20170227-gulzhg?login_token=1UZXumTn4h-43F5vZJ0QD2dus0wdSchPrpvvjWsnDgjG9IGS2VPlyecD1fUk0M1rk4tKscIDnUmbLueM_azPvg&expiry=1488313477&single_use_token=7HtqqeQ2AmYd_v3OsuJ90gZ7G1hInuTHy4c_lhDVCbveVTjHkRY7w3R4tdJkoMM0eNhgv_0IIRkWk3ChkuwBUQ">biggest earnings increase since 2001</a> – well ahead of market expectations.</p>
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<p>The <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/5676.0Main+Features1Dec%202016?OpenDocument">strong results</a> have largely been driven by a 21% (A$4 billion) surge in mining industry profits. Thanks to a dramatic increase in commodity prices, tighter cost controls and increased efficiencies, the industry reported gross profits (trend estimate) of more than A$24 billion for the quarter. </p>
<p>Across the board, firm profitability has benefited from below-trend growth in wages.</p>
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<p>Deregulation, infrastructure investment and tax reform could boost global growth and encourage investment by Australian firms in the process. However, negatives resulting from the potential for trade war (or worse) owing to the redrawing of US foreign policy will clearly hold back investment.</p>
<p><a href="https://espace.curtin.edu.au/handle/20.500.11937/38374">My research</a> has shown that political uncertainty is ultimately a negative for sharemarkets. Frictions in the investment decision process act as one mechanism for this relationship. In the meantime, shareholders should enjoy the benefit of higher dividend payouts while they last.</p><img src="https://counter.theconversation.com/content/73766/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lee Smales does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Rather than lifting investment, Australian businesses have chosen to return cash to shareholders in the form of record dividends and share buybacks.Lee Smales, Associate Professor, Finance, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/590692016-05-11T20:06:55Z2016-05-11T20:06:55Z‘Jobs and growth’ and deja vu: reprising a failed American experiment<p>During his budget speech Treasurer Scott Morrison <a href="http://www.businessinsider.com.au/heres-how-many-times-scott-morrisons-budget-speech-used-the-catchphrase-jobs-and-growth-2016-5">said the phrase “jobs and growth” 13 times</a>. It seems he is not a superstitious man. But <a href="https://en.wikipedia.org/wiki/Triskaidekaphobia">Triskaidekaphobes</a> were not the only ones left with a queer feeling after his speech. Students of the history of tax reform experienced a strange sense of déjà vu.</p>
<p>In 2003 US President George W Bush campaigned on a <a href="http://edition.cnn.com/2003/ALLPOLITICS/01/07/bush.speech/">10-year ‘economic plan’ for “jobs and growth”</a> by cutting taxes. The centrepiece was the “<a href="https://www.congress.gov/bill/108th-congress/house-bill/2">Jobs and Growth Tax Relief Reconciliation Act</a>”. It was the second part of the infamous <a href="https://en.wikipedia.org/wiki/Bush_tax_cuts">Bush Tax Cuts</a>, which began in 2001 and have dogged America’s finances ever since. </p>
<p>The <a href="https://georgewbush-whitehouse.archives.gov/news/releases/2003/05/20030528-9.html">rationale President Bush gave for those tax cuts</a> needs little more than a nationality swap to stand in for Treasurer Scott Morrison. </p>
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<p>“We’re helping small business owners looking to grow and to create more new jobs… By ensuring that [Australians] have more to spend, to save, and to invest, this [budget] is adding fuel to an economic recovery. We have taken aggressive action to strengthen the foundation of our economy so that every [Australian] who wants to work will be able to find a job.”</p>
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<span class="caption">White House Archives.</span>
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<p>The US tax system is notoriously complex. Comparisons between it and Australia’s are fraught. Further, the Treasurer’s tax cuts are not as sweeping as President Bush’s. Yet, striking similarities remain. </p>
<p>Both are tax cuts which will <a href="http://www.abc.net.au/news/2016-05-03/rich-benefit-most-from-scott-morrison's-tax-reforms/7380660">overwhelmingly benefit the well-off</a>. Both aim to increase “jobs and growth” by encouraging investment. Both aim to <a href="http://www.smh.com.au/entertainment/tv-and-radio/qa-recap-audience-member-delivers-an-early-campaign-reminder-to-all-politicians-20160510-goqb4v.html">“grow the pie”</a>; that is, spur economic growth so that taking a smaller proportion of tax will still generate a larger tax base, in real terms.</p>
<h2>The consequences – ballooning federal debt</h2>
<p>In light of the similarities, it is worth considering how effective the Bush Tax Cuts were. In short, not at all.</p>
<p>In 2001 Conservative think tank, the Heritage Foundation, calculated that the first part of the Bush Tax Cuts alone would <a href="http://origin.heritage.org/Research/Reports/2001/04/The-Economic-Impact-of-President-Bushs-Tax-Relief-Plan">eliminate US national debt by 2010</a>. In fact, US national debt more than doubled in that time; <a href="https://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo5.htm">from $5.8 trillion to $13.5 trillion</a>. </p>
<p>The non-partisan <a href="https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/reports/01-26-outlook.pdf">Congressional Budget Office</a> noted that US Federal revenue collapsed, from 20% of GDP in 2000 to 14.6% in 2009, at the end of Bush’s term. Unemployment doubled; from 4% to 8% and rising in that same period.</p>
<p>These results were a body blow for political advocates of “supply-side doctrine” or “trickle-down economics”. It is unsurprising that politicians were – and remain – excited by the idea that government can raise more money simply by lowering taxes. Sadly, many very good ideas have to be abandoned because they don’t work in practice.</p>
<h2>Same, but different</h2>
<p>There is one key point of difference between the American experience and Australia’s. Unlike the United States, Australia has a dividend imputation system. It is a complicated system, often not well understood. Morrison has not taken pains to explain it. Indeed, his statements on the effect of these tax cuts are apt to confuse. Some have accused the Treasurer of <a href="http://www.abc.net.au/news/2016-05-03/budget-2016-scott-morrison's-tax-plan-is-a-big-con-here's-why/7380830">“exploiting widespread ignorance of how the company tax system actually works”</a>.</p>
<p>Dividend imputation means the tax paid by a company is credited to its shareholders. Thus, the tax individual shareholders pay on profits from their investments in companies is not determined by the company tax rates. The proposed cut to the company tax rate - from 30% to 25% - will likely have little impact on Australian investors.</p>
<h2>Why this difference won’t end up helping individual investors</h2>
<p>Imagine Susan, an investor who earns an income from salary of $85,000 who also owns some shares in a company. The company makes a profit, and Susan’s share of that profit is $1,000. </p>
<p>The company tax rate is currently 30%. So the company pays $300 of Susan’s $1,000 share of the profit to the Australian Tax Office and gives the remaining $700 to Susan. Dividend imputation means that Susan also receives franking credits worth the value paid to the ATO - $300. </p>
<p>When it comes time for Susan to pay tax, the Tax Office adds up the value of the dividend <em>and</em> the franking credits then adds the total to her income for the year. Susan is then assessed tax on her whole income - $85,000 in salary, plus $1,000 made up of the $700 dividend and $300 of franking credits.</p>
<p>Since Susan pays 37 cents on every dollar she earns over $80,000, the effect of adding $1,000 to her salary is that she owes the tax office an extra $370 in taxes. The tax office deducts the $300 in franking credits that they already hold, leaving Susan owing a total of only $70 to the Tax Office. Overall, she has received $630 after tax from her investment ($700 in dividends, minus $370 income tax, plus $300 franking credits).</p>
<p>The value of her investment after tax is determined by her income tax rate, not the company tax rate. In practice, the rate of company tax has no impact on the amount of tax Susan pays; she is always assessed at her marginal tax rate.</p>
<p>In the above scenario, let’s imagine the company tax rate drops to 25%. The company has made $1,000 in profit. Now it pays only $250 to the ATO. It distributes the remaining $750 to Susan.</p>
<p>At this stage it looks as though Susan is in front. She has received $750 in dividends, rather than $700 – an extra $50. But we need to factor in franking credits. Under the lower rate of company tax, Susan only receives $250 in franking credits. </p>
<p>And she is still assessed income tax on both the dividend and the franking credits – the full $1000. Her marginal tax rate has not changed, so she still owes $370 on that income. She may deduct the $250 in franking credits, leaving her owing the tax office a remainder of $120. </p>
<p>The extra $50 she received in dividends is offset by the $50 less she receives in franking credits. Overall, her position has not changed; she still receives $630 after tax from her investment, as she would if the company tax rate had remained at 30%</p>
<p>It is the rate of income tax, not company tax, that matters for the individual taxpayer. It is unclear how a change to the company tax rate that will not make investing more attractive to individuals, from a tax perspective, can encourage ‘jobs and growth’.</p>
<h2>Who does benefit? Foreign investors</h2>
<p>So who does benefit from a cut to the company tax rate? The answer depends on the complexity of your tax structures. But there is one clear winner; foreign investors. Foreign investors do not receive franking credits, because they do not pay income tax in Australia. So, any cut to the corporate tax rate has an immediate benefit for foreign investors. </p>
<p>The changes to the company tax rate will make little difference to Australian investors. However, those whose investments are managed from an off-shore company - say, one incorporated and paying tax in the Cayman Islands - stand to benefit significantly. </p>
<p>Which might well give one a strange sense of déjà vu…</p><img src="https://counter.theconversation.com/content/59069/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tomas Fitzgerald has received funding from the WA Bar Association. He is a member of the NTEU and WA Labor.</span></em></p>In 2003, US President George W. Bush campaigned on a 10-year ‘economic plan’ for “jobs and growth”. If it sounds familiar, it should.Tomas Fitzgerald, Senior Lecturer, Law, University of Notre Dame AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/397882015-04-08T05:12:45Z2015-04-08T05:12:45ZExtending dividend benefits to foreign investors may address competition concerns<p>The Federal Government has floated the idea of lowering the corporate tax rate – arguing the current rate of 30% is not internationally competitive. The rationale is that globalisation makes capital perfectly mobile and the marginal non-resident investor in Australian companies will go where corporate tax rates are lowest.</p>
<p>At the same time, the government’s <a href="http://bettertax.gov.au/publications/discussion-paper/">Re:Think Tax Discussion Paper</a> identifies some problems with Australia’s dividend imputation system (albeit recognising some of its advantages). Under the current system, franking credits provide little or no benefit to non-resident investors in Australian companies - because the franked portion of a dividend paid to non-residents is exempt from Australian dividend withholding tax but does not generate a tax offset for them.</p>
<p>The relatively high corporate tax rate is said to deter foreign investors while the dividend imputation system does nothing to attract them.</p>
<p>Cutting the corporate tax rate across the board would be very expensive, although the cost may dissipate over time if the rate cut produced greater economic activity. Importantly the cut in the rate would apply to all companies, not just those with non-resident shareholders. The revenue cost would be mitigated by a change back to a classical system of corporate-shareholder taxation – where corporate profits would be taxed twice.</p>
<p>For closely-held domestic companies a cut in the rate would encourage companies to retain profits as would a move away from dividend imputation towards a classical system or other forms of corporate-shareholder taxation. Again the revenue cost would be mitigated if we remove the 50% discount on capital gains, but this would also encourage profit retention unless capital gains were taxed more heavily than ordinary gains to compensate for the advantages of deferral.</p>
<p>If the problem lies in having a competitive tax rate for non-resident investors in Australian companies, then why not have a solution targeted at those investors?</p>
<p>Why don’t we extend tax offsets on franked dividends to non-resident investors? The technical reason is that, for many resident taxpayers, tax offsets on franked dividends are refundable.</p>
<p>The prospect of giving refundable tax offsets to non-resident shareholders probably does not have a lot of political appeal – but it would be a less expensive way of giving these investors in Australian companies an internationally competitive corporate tax rate.</p>
<p>The extension of franking credits to non-resident shareholders would reduce the effective Australian corporate tax rate for non-resident investors in Australian companies in a targeted way.</p>
<p>Australia currently imposes withholding tax on the unfranked portion of dividends paid to non-resident investors. Where the non-resident comes from a country with which Australia does not have a double tax treaty (DTA) the rate is 30%. Where the non-resident comes from a country with which Australia has a DTA the rate can vary between 0%, 5% and 15% depending on the level of investment and the particular DTA. </p>
<p>Currently Australia exempts the franked portion of a dividend from withholding tax.</p>
<p>Where the non-resident shareholder resides in a DTA country Australia could provide a targeted reduction in the effective Australian corporate tax rate that applied to the non-resident shareholder by imposing withholding tax on the franked portion of the dividend while allowing a proportion of the franking credit to generate a refundable tax offset for the shareholder.</p>
<p>Because of withholding tax rates in DTAs, to produce an even effective Australian corporate tax rate for investors from all DTA countries the proportion of the tax offset allowed would need to fall with the withholding tax rate.</p>
<p>For non DTA countries, we should continue our present policy of exempting the franked portion of the dividend from withholding tax and not allowing tax offsets. Generally we do not have DTAs with very low taxed countries or with countries that are not significant trading and investment partners.</p>
<p>If the Australian corporate rate remained at 30% extending tax offsets for franking credits to non-resident shareholders tapering down as the level of withholding tax decreased would reduce their effective Australian corporate tax rate.</p>
<p>For example, to produce a very competitive 15% effective corporate rate for non-resident investors Australia could, while maintaining its corporate rate at 30%, provide a full tax offset of where a 15% withholding tax applied, a 2/3 credit where 5% withholding tax applied and a ½ credit where a 0% withholding tax applied.</p>
<p>In all cases the effective Australian corporate tax rate for a non-resident shareholder would be a very competitive 15% at a lower revenue cost than under an across the board cut in the corporate tax rate and the benefits of dividend imputation would be preserved for resident shareholders.</p><img src="https://counter.theconversation.com/content/39788/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Taylor has previously worked as a paid consultant to Commonwealth of Australia, Department of the Treasury. He owns shares in Commonwealth Bank of Australia Ltd and Insurance Australia Group Ltd..</span></em></p>If our dividend imputation system makes it unattractive for non-resident investors in Australian companies, why not extend tax offsets on franked dividends to them?John Taylor, Professor, School of Taxation and Business Law, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/59392012-03-20T03:46:08Z2012-03-20T03:46:08ZHow to spend $100 billion: Apple announces dividend, buyback plans<figure><img src="https://images.theconversation.com/files/8780/original/c67pmsdv-1332213613.jpg?ixlib=rb-1.1.0&rect=7%2C12%2C981%2C638&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Apple will pay a dividend to shareholders for the first time since 1995, as it considers how to spend its amassed warchest.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Apple today announced it would pay its first shareholder dividends in almost 20 years, marking a distinct break from the late Steve Jobs’ “no dividends” policy.</p>
<p>The world’s biggest corporation by market capitalization – now worth $US560 billion – will spend $US45 billion of its enormous $US100 billion cash stockpile, paying $US2.65 per share, commencing in Apple’s fiscal fourth quarter (September 2012). Apple will also engage in a share buy-back scheme, totalling $US10 billion.</p>
<p>To a certain extent, Apple has caved to shareholder pressure; investors have long urged the company to deliver dividends back to shareholders. Former CEO Steve Jobs always resisted dividend pay outs, arguing Apple needed “rainy day” money in case the computer maker needed to burn cash during a downturn.</p>
<p>To pacify shareholders, Jobs delivered stock splits instead, increasing the value of existing portfolios, while encouraging new investors to buy new, cheaper Apple shares.</p>
<p>The Cupertino, California company will be forced to use its domestic cash to implement the dividends and buy-back schemes. The bulk of Apple’s treasure chest is held offshore in cash and short-term investments. Like Microsoft and Google, Apple is refusing to repatriate billions of dollars, unless it receives a tax holiday.</p>
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<img alt="" src="https://images.theconversation.com/files/8781/original/hfbgjprp-1332214049.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/8781/original/hfbgjprp-1332214049.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=694&fit=crop&dpr=1 600w, https://images.theconversation.com/files/8781/original/hfbgjprp-1332214049.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=694&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/8781/original/hfbgjprp-1332214049.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=694&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/8781/original/hfbgjprp-1332214049.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=872&fit=crop&dpr=1 754w, https://images.theconversation.com/files/8781/original/hfbgjprp-1332214049.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=872&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/8781/original/hfbgjprp-1332214049.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=872&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Tim Cook is reversing Steve Jobs’ no dividend policy.</span>
<span class="attribution"><span class="source">AAP</span></span>
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<p>During an presidential election year, when corporate taxes remain a controversial domestic issue, Apple and other tech behemoths have powerful friends in US Congress who argue that up to $US1 trillion could be invested in US jobs, if the Obama administration relaxed tax rules, even temporarily.</p>
<p>Multinational tech firms like Apple and Google generate tremendous profits from their global revenues, particularly in markets such as Europe, Japan and China. However, their cash stockpiles are double-edged swords, as they cannot repatriate their cash without facing substantial tax bills in the US.</p>
<p>However, critics argue that when tax holidays are granted, they do not make substantial contributions to jobs growth. Under the provisions of the US Homeland Investment Act (2004), passed by a Republican-majority Congress, US firms repatriated over $US350 billion. However, subsequent studies have demonstrated that corporations employed the cash largely to engage in shareholder payouts, rather than new investment in plant or R&D.</p>
<p>Nevertheless, it’s not as if shareholders don’t spend, save or invest at least some of their earnings in the US. Consequently, it’s scarcely surprising US lawmakers want American corporate cash repatriated, rather than sitting in a bank in Brussels.</p>
<p>Apple will use a significant part of its $45 billion to pay for current and future executive stock options and employee share purchase options. In January this year, CEO Timothy Cook was granted $US376 million in stock options, worth even more since Apple’s share price surpassed $US600. </p>
<p>At the end of 2010, CEO Steve Jobs held over 5.5 million in Apple shares in a trust, valued at almost $US1.8 billion, although he never realised the value of them prior to his death in October 2011. Conversely, CEO Cook, former Chief Financial Officer Fred Anderson and dozens of other Apple executives have realised tens of millions of dollars after exercising share options over the past 10 years, without ever delivering dividends to shareholders.</p>
<p>Investing in Apple just became much more attractive to mutual funds, as well as individual shareholders, and AAPL has risen $15.53 (2.65%) in the few hours since the dividend was announced. Under Jobs, Apple delivered innovation, growth, revenue and astounding stock price growth; under Cook, shareholders may get some value.</p><img src="https://counter.theconversation.com/content/5939/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Remy Davison owns one share in Apple.</span></em></p>Apple today announced it would pay its first shareholder dividends in almost 20 years, marking a distinct break from the late Steve Jobs’ “no dividends” policy. The world’s biggest corporation by market…Remy Davison, Jean Monnet Chair in Politics and Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.