Chartered Accountants Australia and New Zealand and the Tax Institute (together, the Joint Bodies) have lodged a joint submission on ATO’s draft Practical Compliance Guideline PCG 2024/D3 Restructures and the new thin capitalisation and debt deduction creation rules - ATO compliance approach (draft PCG).

In the submission, the Joint Bodies highlight their concerns about the broad application of the debt deduction creation rules (DDCR) introduced by the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share - Integrity and Transparency) Act 2023. These rules aim to prevent excessive debt deductions within multinational groups by disallowing deductions for artificial interest-bearing debt created to shift profits out of Australia.

The Joint Bodies emphasise the DDCR specific anti-avoidance rule should not apply to genuine restructures to comply with the new rules, if they do not involve artificiality and contrivance. This aligns with the policy objectives expressed in the explanatory memorandum to the legislation. It is crucial that the examples in the PCG expressly illustrate this, in particular, a simple restructure involving the replacement of related party debt with third-party debt, should not be considered a high-risk restructure.

The Joint Bodies also called for the inclusion of examples addressing the interaction between the DDCR and the consolidation regime, as well as the interaction with Division 7A loans and unpaid present entitlements.