Responding to Globalisation. Are Imputation Systems Up to the Challenge?

Countries around the globe are currently struggling with the seemingly conflicting goals of maintaining the integrity of their company/shareholder tax regime whilst not presenting a disincentive to both inward and outward investment. In this regard, the standard adopted by most developed nations, the imputation system, is proving difficult to adapt to the pressures of a global economy. Imputation systems can generate a particularly perverse taxation result in circumstances where a country is merely a conduit for the flow of foreign source income and also in so called triangular situations. Whilst many countries have enacted special conduit relief provisions few have tackled the problems presented by triangular taxation.Reforms to a country's imputation regime necessary to tackle triangular taxation are comprehensive, complex and problematic. This is well illustrated by recent Australian and New Zealand amendments directed at one aspect of the triangular tax problem between the two nations. Although extremely complex and years in the formation, this initiative remains only a partial response to the issues that arise.There are, however, alternative company/shareholder tax regimes to imputation. In fact the current worldwide trend is towards credit and exemption regimes partly because of issues such as conduit and triangular taxation. This is to be contrasted with the Australian and New Zealand experiment. It is suggested that notwithstanding the trade-off in equity and, possibly, revenue the adoption of an alternative company/shareholder taxation regime may be preferable to attempting to amend the imputation system