Making Multinationals Pay Their Fair Share - Integrity and Transparency - Bill 2023

In response to a request for industry input, BDO has provided a submission to The Senate Economics Committee regarding the proposed Thin Capitalisation changes and reporting of subsidiaries’ tax residency.

The submission included commentary and suggestions from our tax experts.

Thin Capitalisation amendments

  • The fixed ratio test (FRT) tax EBITDA
    • Reduction of tax EBITDA for non-deductible research and development expenditure- should be a reduced for notional R&D deduction amounts that are deemed to be non-deductible.
    • Increase of tax EBTDA for previous year losses deductions.
    • Modify the exclusion of dividends and associated trust/partnership distribution Income from the tax EBITDA to allow sharing of the thin capitalisation debt deduction limit to account for debt funding at the ownership level.  
  • External Third Party Debt Test (ETPDT)
    • the ETPDT is punitive in its application and provides very little flexibility for groups entering into third party financing arrangements via a conduit associate entity.
    • The requirement for entities to be an ‘Australian resident’ may preclude trusts and partnerships from eligibility for the ETPDT.
  • Debt Deduction Creation Rule
    • The Debt Deduction Creation rule should have a principal purpose test so that it only applies where the arrangement has a principal purpose to create debt deductions. Without such a principal purpose test genuine commercial transactions, restructuring and capital reorganisation activity could be inappropriately disadvantaged.

Disclosure of subsidiaries

BDO has concerns about:

  • Implications for directors in declaring that the disclosures are ‘true and correct’, which is not terminology that is currently included in the director’s declaration, nor is it used for audit purposes.
  • What are the evidentiary requirements that auditors will need in supporting subsidiary disclosures?

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Need tax advice? Should you have any questions regarding the content of this submission, reach out to our Corporate and International Tax team or learn more about the services we provide.