Royal commission into matters relating to norfolk island

The role of companies in the economy


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4.The role of companies in the economy

The effect upon Norfolk’s economy of its tax status, especially over the last decade, has been significant. This feature of the Island has attracted both persons and money. Retired people and others seeking to lessen the weight of income tax, death, gift and other duties have drifted to the Island, along with a variety of professional people who have provided services in respect of the company structures and trusts established in the Island to that end. These activities have meant a flow f money (largely in the form of book entries) through the Island’s banks of many thousands of millions of dollars over the last decade negligible proportions of which money have stayed in the Island. In that sense, the Island has merely been s base for paper transactions involving funds of massive dimensions

However, as a relatively minute spin—off from these transactions, the Island has received benefits in the form of employment for about two dozen Island residents, some relatively small company donations to Islands causes and most important company registration fees paid to the public revenue. It was also contended that these company activities brought tourists to Norfolk who would otherwise never have condescended to grace he Island with their presence. This last alleged benefit is held to be doubtful as had these people not been visiting the Island, it is probable that ordinary tourists would have occupied their plane seats and accommodation anyway.

It is appropriate to look closely at the history of this company activity in the context of this section of the Report on the economy because of the effect which companies have had on the Island’s revenue. Other aspects of the activity will be examined in Chapter 13.

The first company registration in the Island occurred in 1932 and was a foreign company incorporated in Fiji. For the thirty years between 1932 and 1962 only a further seven companies all told were incorporated in Norfolk Island and these were mainly for local trading companies set up and operated more along the lines is of co—operative societies. There was practically no mainland influence in company activities in Norfolk Island until 1963. From then on, the picture changed radically and is best illustrated by the following table:

Year Company registrations in Comments on the nature
the Island in that year of the registration

1964 16 15 were mainland based

1965 23 approx. 21 were mainland based

1966 70 nearly all were mainland based

Thereafter, the registrations and the total number of companies registered in the Island at the close of each year were as follows:
Year No. of companies No. Remaining on
incorporated in
register as at
Norfolk Island in December of each year
each year

1967 188 294

1968 480 774

1969 296 972

1970 382 1354

1971 296 1571

1972 166 1452

Year No. of companies No. Remaining on
incorporated in register as at
Norfolk Island in December of each year
each year

1973 118 1328

1974 102 1294

1975 39 998

1976 81 (to 30.6.76) 1025 (at 30.6.76)

The statistical picture of the benefit to the Island’s revenue from company registrations and annual fees paid by companies is seen from the following table:

Company revenue figures from 1968 to 1976

Year $

1968—69 22,455

1969—70 43,401

1970—71 51,403

1971—72 88,65326

1972—73 163,814

1973—74 145,491

1974—75 197,000

1975—76 177,914

N.B. 1974—75 Receipts included $109,675 owing from earlier years.

These contributions from companies registered in the Island were undoubtedly significant and, viewed in the context of the Island’s economy, must be regarded as constituting an important source of revenue. It is, however, misleading to view revenue from companies in such a narrow context. When looked at from the overall point of view of both Norfolk Island and the rest of the country which bears the burden of administering Norfolk, namely Australia, there is seen to be a clear and enormous net loss by way of revenue forgone through the revenue avoidance schemes which used the Island as a base. This taxation loss aspect is treated fully in Chapter 13. In this chapter on the economy it is sufficient to point out that even though company fees have contributed significantly to revenue raised in Norfolk Island over the last decade, it would have been better for Australia to have paid such a contribution direct to that revenue had it been needed rather than to allow the revenue loopholes to continue to exist.

Viewed from the aspect of the Island’s economy, and in the light of the steps taken recently (plus the possibility of further steps) to close the revenue loopholes, future company fees cannot really be regarded as anything other than an unpredictable ancillary activity or industry. Once Australia decided to close off the income tax loopholes, it was only a question of which methods of the several available were to be used, and when these methods were to be implemented. That decision was taken in 1972 and partly implemented by an enactment in 1973. It is highly probable that further steps will be taken to close other loopholes relating to death, gift and stamp duties. In addition (following the Berwick decision) there is now no bar to the Taxation Office sending its investigators to Norfolk Island fully armed with powers to demand complete details of the financial activities of all companies, trusts and banks, and the backgrounds of all incomes of entities in the Island.

Hence, when looking at Norfolk’s economy it is wise to discount largely company activities as being likely to make a substantial contribution to revenue in the future.

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