July start date for multinational tax changes expected to stay
Accountants should start assessing the impact of changes to the thin capitalisation rules with the 1 July start date unlikely to be delayed, says Grant Thornton.
Taxpayers and multinationals have had limited time to consider the impact of incoming changes to the thin capitalisation laws which will limit the amount of debt deductions that entities can claim in an income year, says Christine Cornish, Partner and Transfer Pricing specialist at Grant Thornton.
The thin capitalisation measures apply from 1 July 2023 but are yet to be passed as law.
Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023 was only introduced into the House of Representatives on 22 June and has been referred to the Senate Economics Legislation Committee.
Multinationals who are currently eligible to claim interest or debt deductions in Australia under the existing Thin Capitalisation laws may find their interest or debt deductions either cease to be available or become severely restricted as a result of the changes, said Ms Cornish.
The limited consultation period for the measures has meant that a large proportion of businesses are still in the process of trying to educate themselves about what the changes mean.
“You’ve got some taxpayers who are quite on the ball with these changes and have moved into the modelling stage but there’s a huge proportion of our clients who are still just trying to learn about them,” she told Accounting Times.
“There’s a lot of concern about the changes because it’s all happened so quickly and so a lot of businesses are still trying to get their heads around it.”
The businesses that will be most heavily impacted by these changes will be those with significant amounts of upfront debt.
“The classic example is infrastructure projects such as building a train line. Renewable energy is another good example where the upfront bill of putting in a wind farm is going to have large upfront costs and you need debt to finance that but you don’t have any profit yet,” said Ms Cornish.
“These are the businesses that are going to be significantly impacted because in the past they would have got a deduction for at least a portion of their debt. Under the new rules, because they’re building something before they’re getting their revenue in, they’re not going to be able to get a deduction for their debt arrangements.”
Given the 1 July 2023 start date, Ms Cornish said accountants will need quickly identify which of their clients are the most impacted and assess what that impact is.
Ms Cornish said the starting date is unlikely to be delayed for the changes despite the bill being referred to the Senate Economics Legislation Committee.
“The government is likely to stick to the 1 July start date. They did push back the start date for public disclosure of country by country reporting but that was to align it with the rest of the world,” she said.
“With the thin capitalisation changes I don’t think they’ve really got a reason to hold back the starting date.”
Ms Cornish said the bill was likely referred to the Senate Economics Committee so that they could understand the financial impact the changes will have.
“I don’t think that report is going to change the view that the new rules will become relevant for income years on or after 1 July 2023,” she said.
“We’ll wait and see but in my view that’s pretty solid.”
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