Multinational Tax Integrity—strengthening Australia’s interest limitation (thin capitalisation) rules

The Taxation Committee of the Business Law Section of the Law Council of Australia (the Committee) welcomes the opportunity to comment on Treasury’s exposure draft legislation (Exposure Draft) and explanatory memorandum (Draft EM) on proposed changes to Australia’s thin capitalisation rules in Division 820 of the Income Tax Assessment Act 1997.¹

In addition, in the Schedule to this submission we have we have included extracts from the publication, ATTA Doctoral Series: Volume 7: Preventing tax base erosion through reform (Oxford University Press, 2019) by Associate Professor Ann Kayis-Kumar, a member of the Committee. These extracts focus on a critique of the thin capitalisation rules in the context of good tax design.

The Committee comments on the following aspects of the Exposure Draft and Draft EM:

• exemptions to the thin capitalisation rules in sections 820-35 and 820-37;
• commencement date; 
• the nature of choices:
  • irrevocable choices; and
  • 10 per cent associates and the need for one-in-all-in;
• interaction with the transfer pricing rules; 
• changes to sections 25-90 and 230-15; 
• definition of financial entity; 
• special purpose vehicle exemption; and 
• conduit financier concession.

Last Updated on 10/11/2023

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