As part of a multinational tax integrity package aimed to address the tax avoidance practices of multinational enterprises (MNEs) and improve transparency through better public reporting of MNEs’ tax information, the Australian Treasury issued a Consultation Paper in August 2022.
This paper seeks to consult on the implementation of proposals to:
- amend Australia’s existing thin capitalisation rules to limit interest deductions for MNEs in line with the Organisation for Economic Cooperation and Development (OECD)’s recommended approach under Action 4 of the Base Erosion and Profit Shifting (BEPS) program (Part 1);
- introduce a new rule limiting MNEs’ ability to claim tax deductions for payments relating to intangibles and royalties that lead to insufficient tax paid (Part 2); and
- ensure enhanced tax transparency by MNEs (Part 3), through measures such as public reporting of certain tax information on a country‑by‑country basis; mandatory reporting of material tax risks to shareholders; and requiring tenderers for Australian government contracts to disclose their country of tax domicile.
The changes contemplated seek to target activities deliberately designed to minimise tax, while also considering the need to attract and retain foreign capital and investment in Australia, limit potential additional compliance cost considerations for business, and continue to support genuine commercial activity.