The Albanese Government is progressing work on its Multinational Tax Integrity package to improve the integrity, transparency, and fairness of the tax system.
The Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023 was introduced this week.
The Bill amends Australia’s thin capitalisation rules to limit the amount of interest expenses that entities can deduct for tax purposes from 1 July 2023. This tax integrity measure is estimated to result in a gain to receipts of $720 million over the 4 years from 2022‑23.
These amendments introduce earnings‑based interest limitation rules for general class investors to replace the existing asset‑based rules and a new third party debt test. The current safe harbour test lets an entity deduct all interest expenses where their total debt amount does not exceed 60 percent of their total assets value. Under the new default fixed ratio test, all interest expenses can be deducted where net interest expenses do not exceed 30 percent of profits.
This reflects the government’s immediate priorities to strengthen the thin capitalisation rules to stop excessive debt deductions and ensure that deductions are linked to genuine economic activity. The Bill reflects several technical changes proposed by industry to provide a better balance with commercial arrangements, including for trust structures.
The Bill also introduces new reporting requirements for Australian public companies, both listed and unlisted, to disclose information on their subsidiaries in their annual financial reports, to apply from 1 July 2023. The reported information will ensure companies are upfront with how they structure their subsidiaries, including for tax purposes.
The measures in the Bill reflect several rounds of public consultation to balance the integrity of our tax system while continuing to support genuine commercial activity and being mindful of compliance costs. Treasury will continue to work with industry stakeholders to ensure the new rules operate as intended.
The government will also continue to engage with stakeholders on our commitment to introduce a public country‑by‑country reporting regime. Over the coming months, we will further engage on the appropriate level of disaggregated reporting. This will build on refinements we have already made to align more closely with the European Union’s public country‑by‑country regime.
Information on the outcomes of public consultation on the Multinational Tax Integrity package is available on the Treasury website.