Pitcher Partners Advisors Proprietary Limited ABN 80 052 920 206
Ref: AMK:lg
Level 13, 664 Collins Street Docklands VIC 3008 Level 1, 80 Monash Drive Dandenong South VIC 3175
14 April 2023
Postal Address GPO Box 5193 Melbourne VIC 3001 p. +61 3 8610 5000
International Tax Unit Corporate and International Tax Division The Treasury Langton Cres PARKES ACT 2600 By Email: MNETaxIntegrity@treasury.gov.au Dear Sir/Madam MULTINATIONAL TAX INTEGRITY – STRENGTHENING AUSTRALIA’S INTEREST LIMITATION (THIN CAPITALISATION) RULES 1.
Thank you for the opportunity to provide comments to Treasury in relation to the exposure draft legislation (“ED”) and explanatory memorandum (“EM”) relating to the proposed new thin capitalisation rules to apply from 1 July 2023.
2.
Pitcher Partners specialises in advising taxpayers in what is commonly referred to as the middle market. Many of these groups have offshore investments and/or offshore investors and also invest alongside other taxpayers with inbound investors or outbound investments. Accordingly, we service many clients that may be impacted by changes to the thin capitalisation rules.
3.
We understand that the Government is committed to the policy of implementing an interest limitation rule in accordance with the OECD’s BEPS Action 4 Report (“OECD Report”). Accordingly, our submission is not directed towards this policy choice.
4.
However, we highlight that there are a number of technical and practical deficiencies contained in the current design of the rules. We believe that many of these critically need to be addressed before legislation is introduced.
5.
In particular, the external third party debt test (“ETPDT”) as contained in the ED is extremely limited and impractical in its current format and requires significant refinement for it to be a workable replacement for the current arm’s length debt test.
6.
Additionally, while the fixed ratio test (“FRT”) in the ED is likely to be a straightforward rule to apply, we believe it will provide a significant number of inappropriate outcomes particularly for non-corporate taxpayers.
7.
Our review of the key issues and technical problems with the ED has resulted in an attachment containing over 25 pages of (what we consider to be) deficiencies in the current ED. We are significantly concerned that this legislation is being rushed in with
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Pitcher Partners is an association of independent firms. Liability limited by a scheme approved under Professional Standards Legislation. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. B J BRITTEN D A THOMSON M C HAY S SCHONBERG S DAHN P A JOSE
A R YEO M J HARRISON P W TONER T SAKELL G I NORISKIN A T DAVIDSON
K L BYRNE C D WHATMAN S D WHITCHURCH A E CLERICI D J HONEY G J NIELSEN
A D STANLEY N R BULL D C BYRNE A M KOKKINOS P B BRAINE G A DEBONO
R I MCKIE F V RUSSO M R SONEGO A T CLUGSTON S J DALL M G JOZWIK
D W LOVE B POWERS A SULEYMAN K J DAVIDSON D R DOHERTY
J L BEAUMONT M DAWES B A LETHBORG M J WILSON I CULL
pitcher.com.au B FARRELLY A O’CARROLL D BEDFORD T LAPTHORNE Y TANG
D Y HUNG A D MITCHELL M LIM D BURT L BAINBRIDGE
T BRADD I TAN A BLIZZARD S CRAIG L MALCOLM