Multinational tax changes enter the Senate

The multinational tax transparency bill was introduced into the Senate yesterday after passing through the lower house.

With yesterday the last Parliamentary sitting day for August, the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023 won’t be passed by both houses until at least the next sitting in September.

The bill introduces new rules aimed at improving the integrity of the Australian tax system.

Schedule 1 to the bill amends the Corporations Act 2001 to require that Australian public companies disclose information about their subsidiaries in their annual financial reports, by way of a ‘consolidated entity disclosure statement’.

Schedule 2 to the bill amends Australia’s thin capitalisation rules to limit the amount of debt that entities can deduct for tax purposes.

Certain amendments within the bill have been controversial with industry groups concerned the debt creation rules contained with the schedule 2 will negatively impact genuine transactions and “disrupt the efficient operation of capital markets”.

Pitcher Partners previously warned that the changes will discriminate against taxpayers in the middle market compared with taxpayers in the larger market sector.

“As currently drafted, the provisions will result in significantly inappropriate outcomes for taxpayers in the middle market that are not consistent with the policy approach recommended by the OECD in its BEPS Action 4 Report on the limitation of interest deductions. Many of the rules included in the provisions were also not contained in the Exposure Draft Legislation provided for public consultation,” the Pitcher Partners said in a recent submission.

The accounting firm has called for the debt creation rules in subdivision 820-EAA to be completely removed from the bill until appropriate consultation has occurred.

“Proposed Subdivision 820-EAA was not included in the exposure draft and was instead included in the Bill without any prior public consultation. As drafted, the provisions have scope to apply to ordinary commercial arrangements resulting in a significant and unfair impact on taxpayers through the denial debt deductions,” said Pitcher Partners.

The joint accounting bodies have also identified “major deficiencies” with some of the changes in the bill and have urged the government to defer the commencement date of the amendments.

“Many areas require further clarity and resolution and the retrospective application is unfair to taxpayers,” CPA Australia said in a submission to the Senate Economics Legislation Committee.

Chartered Accountants Australia and New Zealand (CA ANZ) said it was disappointed by the lack of transition time for the thin capitalisation measures.

“The lack of transition time, particularly for June balancing taxpayers, for the modified thin capitalisation measures to allow for consideration of the impact and for any restructuring of existing financial arrangements is extremely disappointing,” the accounting body stated.

“We query whether the impact statement in the EM has adequately taken into consideration the impact the hard 1 July 2023 start date will have on private sector decision making and whether debt issuers were surveyed to establish whether they have sufficient time to refinance issued instruments in an orderly manner.

“At the very least, and in light of concerns expressed to CA ANZ regarding the previously unseen Subdivision 820-EAA (the Debt Creation Rules), the Committee should recommend a deferred start date for this particular aspect of the Bill. This would allow time for officials from Treasury and the ATO to engage with stakeholders on both the drafting and practical interpretation of the Debt Creation Rules.”

The government is unlikely to defer the start date for the changes despite the bill being referred to Senate Economics Legislation Committee, according to Grant Thornton.

Grant Thornton partner and transfer pricing specialist Christine Cornish said the government will be very likely to stick with the 1 July 2023 start date for the reforms.

They did push back the start date for public disclosure of country by country reporting but that was to align it with the rest of the world,” Ms Cornish told Accounting Times previously.

“With the thin capitalisation changes I don’t think they’ve really got a reason to hold back the starting date.”

Ms Cornish said the bill was likely referred to the Senate Economics Committee so that they could understand the financial impact the changes will have.

“I don’t think that report is going to change the view that the new rules will become relevant for income years on or after 1 July 2023,” she said.