The Tax Institute welcomes the opportunity to make a submission to the Treasury in relation to the exposure draft parliamentary amendments to the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023 (draft amending Bill) and accompanying supplementary draft explanatory memorandum (draft amending EM).
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 Tax Institute is pleased to see that the draft amending Bill proposes some welcome amendments to the exposure draft legislation (original draft Bill) and accompanying explanatory materials (original draft EM) that were introduced into the Parliament on 22 June 2023. However, there are some outstanding significant concerns that require further consideration and amendment before the proposed changes should progress.
Our comments in this submission are limited to the application of the new thin capitalisation framework to Trusts, debt deduction creation rules (DDCR), third-party debt test (TPDT), the proposed date of the reforms, and comments regarding the revised EM.
Our recommended further amendments to the draft amending Bill and draft amending EM may be summarised as follows:
- allow general class investors holding an interest of 10%-49.9% in a trust to be able to recognise their share of tax EBITDA from the trust;
- extend the concept of ‘excess tax EBITDA’ beyond trusts to companies and partnerships where dividends and partnership income is excluded from tax EBITDA;
- consult further on the DDCR to resolve significant issues;
- amend the DDCR to include measures equivalent to those of the conduit financing rules such that back-to-back debt arrangements involving a loan between an entity and its associate that are back-to-back with a loan from an unrelated lender and the associate are not caught by the DDCR;
- correct technical issues in the drafting in respect of guarantees, security or other forms of credit support provided for the purposes of TPDT; and
- defer the proposed start date so that taxpayers have enough time to understand the implications of existing arrangements.
Our detailed response and recommendations to improve the draft amending Bill and draft amending EM are contained in Appendix A. We have attached at Appendix B our earlier submission to the Treasury consultation on Treasury Laws Amendment (Measures for Future Bills) Bill 2023 proposing refinement of the new thin capitalisation framework dated 14 April 2023 (April Submission). We have attached at Appendix C our submission to the Senate Economics Legislation Committee dated 21 July 2023 on the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share-Integrity and Transparency) Bill 2023 (Senate Committee Submission). Our comments in this submission should be read together with our April Submission and Senate Committee Submission, particularly to the extent to which certain issues remain unresolved.
The Tax Institute is the leading forum for the tax community in Australia. We are committed to shaping the future of the tax profession and the continuous improvement of the tax system for the benefit of all. In this regard, The Tax Institute seeks to influence tax and revenue policy at the highest level with a view to achieving a better Australian tax system for all.