CA ANZ has lodged a submission for the Senate Economics Legislation Committee inquiry into Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023 (the Bill). Our submission outlines member feedback on the Bill which includes, broadly:

• The drafting of the Bill now before Parliament is flawed in several respects. Drafting deficiencies mean that it is likely that taxpayers will end up being treated differently, depending on their legal structures and borrowing arrangements.
• Taxpayers impacted by the new thin capitalisation provisions continue to advocate for the retention of a “safe harbour” approach. They are concerned that even though their arrangements satisfy the new fixed ratio test in the Bill, their debt deductions remain exposed to ATO transfer pricing scrutiny and disputation. Additional compliance costs are likely for transfer pricing “position papers” (e.g. justifying the quantum of debt) underpinning the revamped thin capitalisation calculations.
• The Bill fails to cater adequately for some commercial structures commonly found in certain industries (such as large property trusts and joint venture arrangements).
• The failure to undertake public consultations on Subdivision 820-EAA in the Bill - Debt deduction limitation rules for debt deduction creation (all relevant entities) - has resulted in legislation which lacks clarity and will impede commercial transactions which are not motivated by a desire to reduce tax liabilities.
  • Having previously determined that debt creation rules were not necessary in Australia, what has changed to justify them now? The changes to the thin capitalisation rules are likely to reduce the amount of debt deductions claimed by entities – does Australia really need the debt creation rules?
• There is a disconnect between the wording of some parts of the legislation and the EM (e.g. in some cases the latter suggests a benign interpretation of the proposed law which is unsupported by the wording of the Bill).
• The ATO will have much to do in crafting public advice and guidance to create ‘work-around’ solutions for poorly drafted legislation.