Tax-driven Off-Market Buybacks (TOMBs): Time to Lay Them to Rest
AuthorBrown, C; Davis, K
Source TitleAustralian Tax Forum: a journal of taxation policy, law and reform
PublisherThe Tax Institute
University of Melbourne Author/sDavis, Kevin
Document TypeJournal Article
CitationsBrown, C. & Davis, K. (2020). Tax-driven Off-Market Buybacks (TOMBs): Time to Lay Them to Rest. Australian Tax Forum: a journal of taxation policy, law and reform, 35 (2), pp.232-257
Access StatusThis item is currently not available from this repository
Tax-driven Off-Market Buybacks (TOMBs) have been used by large Australian companies to distribute cash and stream franking (tax) credits to low-tax-rate shareholders. While small in number, the amounts are significant, involving an estimated cost to government tax revenue in 2018 of around $2 billion. This paper reviews the current and historical evolution of the regulation and taxation of TOMBs and argues that there are fundamental problems with corporate use of TOMBs. These include inequitable treatment of shareholders, government tax revenue costs, inconsistency with good principles of taxation, arbitrary tax determinations and practices which are difficult to justify. Since corporates can distribute cash to shareholders using other, quite standard, capital management techniques, we argue that a social cost-benefit analysis leads to the conclusion that TOMBs should be prohibited.
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