The Tax Institute welcomes the opportunity to make a submission to the Senate Economics Legislation Committee (Committee) in respect of its inquiry and report on the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share-Integrity and Transparency) Bill 2023 (Bill) and accompanying explanatory memorandum (EM).
In the development of this submission, we have closely consulted with our National Large Business and International Technical Committee to prepare a considered response that represents the views of the broader membership of The Tax Institute.
Schedule 1 of the Bill proposes to introduce additional disclosure requirements regarding the subsidiaries of Australian public companies. We consider that Schedule 1 of the Bill would benefit from further consultation on specific reporting aspects and a deferred application date. This will allow for the identification of opportunities to streamline the reporting of the additional disclosure requirements, reducing the compliance costs for impacted taxpayers. We also consider that further clarification is required in certain regards, to ensure that taxpayers and tax practitioners can better understand, and affected taxpayers can meet, their new disclosure obligations.
Schedule 2 of the Bill propose to introduce a new framework and regime for Australia’s thin capitalisation rules. The new thin capitalisation framework is a significant change for all impacted taxpayers, as it fundamentally alters the application of the existing rules. Schedule 2 of the Bill is currently proposed to apply to income years commencing from 1 July 2023. In practice, the Bill requires taxpayers to retrospectively comply with a new framework as the start date has now passed and legislation has not yet been enacted. The Tax Institute is of the view that Schedule 2 of the Bill should be deferred by a period of at least 12 months from the proposed start date to provide taxpayers with sufficient time to understand their obligations.
The new thin capitalisation framework is also likely to have a broader application than intended by the policy in relation to common commercial transactions involving trust groups.
We consider that amendments are required to better align the outcomes between companies and trust groups, ensuring that there are more proportionate and consistent outcomes across corporate structures.
Schedule 2 to the Bill also proposes to introduce a new Subdivision 820-EAA to the Income Tax Assessment Act 1997 (ITAA 1997). This new subdivision was not part of the exposure draft legislation and would benefit from public consultation to ensure its practical impact is proportionate to the intended policy outcome. As current drafted, there are concerns that the rules may unintentionally and unfairly apply to common and low-risk arrangements. We consider that these rules require a dominant purpose threshold requirement to ensure that they only target arrangements of concern. There are also concerns that proposed Subdivision 820-EAA of the ITAA 1997 may have a retrospective impact. We consider that it would be an inappropriate outcome for these rules to apply retrospectively to pre-existing arrangements that are compliant with the current thin capitalisation regime.
Further, we recommend that consideration be given to certain other aspects of Schedule 2 of the Bill to ensure that it does not encourage market distortions and appropriately accounts for existing tax concepts.