Business taxation Large business Royalties

Denying deductions for payments relating to intangible assets connected with low corporate tax jurisdictions

Author: The Tax Institute

Published Date: 3 May 2023


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The Tax Institute welcomes the opportunity to make a submission to the Treasury in relation to the Treasury Laws Amendment (Measures for Consultation) Bill 2023: Deductions for payments relating to intangible assets connected with low corporate tax jurisdictions exposure draft bill (draft Bill) and the accompanying explanatory memorandum (draft EM).

We thank the Treasury for meeting with us to discuss our concerns and feedback with respect to the draft Bill and draft EM. We appreciate Treasury’s openness to discussing the proposed measure and the opportunity to partake in the development of its design to ensure it achieves its policy intent in an equitable manner.

In the development of this submission, we have closely consulted with our National Large Business & International Technical Committee to prepare a considered response that represents the views of the broader membership of The Tax Institute.

The draft Bill proposes to introduce an anti-avoidance provision targeted at denying deductions for payments relating to the exploitation of intangible assets to associates of significant global entities (SGEs) in low corporate tax jurisdictions. The draft Bill contains several definitions and concepts that are new to Australia’s taxation system and which require greater clarity and guidance for taxpayers and tax practitioners.

The breadth of the proposed definitions for ‘exploit’ and ‘intangible asset’ are likely to result in a broader range of transactions than intended under the policy being caught within scope, resulting in potentially inequitable outcomes. We consider that these definitions should be refined and clarified to ensure they only apply when appropriate. 

Similarly, the proposed definition for a ‘low corporate tax jurisdiction’ contains significant complexity and, as currently drafted, can capture higher tax jurisdictions which do not appear to be contemplated by the original policy. Subject to the next comment, we are of the view that the definition would benefit from tightening and refinement, with supporting guidance to better emphasise that it is intended to capture a country’s headline corporate tax rate or alternatively, a specific preferential patent box regime. The proposed definition for a ‘low corporate tax jurisdiction’ should also take into account certain state taxes that exist in some countries. This would enable a fairer comparison as, in effect, a higher rate of corporate tax is collected across various levels of Government in certain jurisdictions.

Importantly, The Tax Institute is of the view that the proposed measure should include a dominant purpose test, ensuring it is better aligned with other anti-avoidance provisions and does not produce inappropriate outcomes such as penalising taxpayers undertaking transactions where there is no tax mischief. Further, we consider that additional shortfall penalties would be excessive and are not necessary, given the extensive penalty regimes to which SGEs are currently subject.

Finally, we consider that the start date for the measure should be delayed until 1 July 2024. This will ensure that taxpayers and tax practitioners have sufficient time to understand the implications of the changes on their circumstances. It will also allow time for the Australian Taxation Office (ATO) to provide the guidance needed to allow taxpayers to practically comply with their new obligations.


  • Published By:The Tax Institute
  • Published On:3 May 2023

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Business taxation Large business Royalties

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