Show simple item record

dc.contributor.authorAllen, Christina
dc.identifier.citationAllen, C. 2018. Potential Failure of the Australian CFC Rules in the Digital Economy. Australian Tax Review. 47 (2): pp. 114-127.

The controlled foreign company (CFC) regime operates to overcome the situation where resident investors defer or avoid paying tax on their foreign sourced income by retaining profits within their controlled companies abroad. However, its prescriptive approach is concerning as we enter the digital era. One of the features which raises this concern is that income is categorised in a particular manner, which is examined by this article with reference to various revenue models in the digital economy. It observes that the existing framework provides tax planning opportunities with the effect to undermine policy objectives. This deterrence is likely to spread out among multinationals and small taxpayers alike as digitalisation becomes a prerequisite for doing business in modern commerce. The article first explains two structural taxing principles and how they relate to fiscal benchmarks. It discusses the operation of Australia's CFC rules to understand how the capital import neutrality benchmark is applied to exempt certain income from Australian tax. It further identifies key terms that provide the basis for giving this exemption, which are applied to the digital economy to demonstrate the extent to which the CFC rules are ineffective. In concluding remarks, the author suggests possible remedies based on the observations made throughout this article, but emphasises the need for broader analysis taking into account different industries, emerging business models and the use of intangibles. The reform is necessary with clear policy objectives and the consideration of other areas of tax law.

dc.publisherThomson Reuters
dc.titlePotential Failure of the Australian CFC Rules in the Digital Economy
dc.typeJournal Article
dcterms.source.titleAustralian Tax Review

This article was first published by Thomson Reuters in the Australian Tax Review and should be cited as Allen, C., Potential failure of the Australian CFC rules in the digital economy, 2018, 47, Aust Tax Rev, 114. For all subscription inquiries please phone, from Australia: 1300 304 195, from Overseas: +61 2 8587 7980 or online at The official PDF version of this article can also be purchased separately from Thomson Reuters.

This publication is copyright. Other than for the purposes of and subject to the conditions prescribed under the Copyright Act 1968 (Cth), no part of it may in any form or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) be reproduced, stored in a retrieval system or transmitted without prior written permission. Enquiries should be addressed to Thomson Reuters (Professional) Australia Limited. PO Box 3502, Rozelle NSW 2039.

curtin.departmentCurtin Law School
curtin.accessStatusOpen access
curtin.facultyFaculty of Business and Law
curtin.contributor.orcidAllen, Christina [0000-0001-6454-6131]

Files in this item


This item appears in the following Collection(s)

Show simple item record