The past few weeks have been exceptionally busy from an international tax perspective, with the Government making headway on a number of its tax integrity and enhanced tax transparency measures.
The multinational tax integrity package comprises three key measures: the Australian interest limitation regime, arrangements involving intangibles and tax transparency measures. These measures were an initiative that was a part of the Labor Government’s election commitment.
Since winning the election, the Government has been quick to act, commencing its initial round of consultation on the new measures in August 2022. Exposure draft legislation was released on each of the measures since mid-March, with the thin capitalisation measures and aspects of the tax transparency measure making its way to the floor on the last sitting day of Parliament on 22 June 2023 before the start of the new financial year. The intangibles integrity measures and country-by-country reporting tax transparency measure are still in consultation phase.
Here at JWS, we have been actively tracking the progress of the multinational tax integrity package.
The various measures of the multinational tax integrity package are expected to impact income years commencing on or after 1 July 2023.
We do not anticipate that this start date will change, despite Parliament not resuming until the end of the month, with the first sitting of Spring commencing on Monday, 31 July 2023. The full suite of rules are still expected to become law imminently. Furthermore, while these measures are not yet finalised and are still being consulted on, we do not anticipate any wholesale changes to the draft wording of any of the rules.
The multinational tax integrity and transparency package is a significant addition to the already complex set of tax rules that multinationals must navigate should they choose to do business in Australia. Financing arrangements giving rise to debt deductions have always been an ATO area of focus, and with the amendment to the thin capitalisation rules, including the new debt creation schemes integrity measure, compliance activity in this area is likely only to increase. With the new intangibles measures, we anticipate that the ATO will dedicate further resources in the coming years to reviewing multinationals’ royalty and other like cross-border arrangements, in particular in relation to how the new intangibles measures would interact with such arrangements. Businesses with an Australian presence and cross-border transactions should consider these rules carefully and be prepared to substantiate any positions taken should the need arise to defend any arrangements against ATO scrutiny.
We will continue to track the progress of each of these measures in the coming months and welcome discussion on how we can assist taxpayers in preparing and assessing the impact of these new rules.
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