The Australian government on August 2 published a draft bill designed to strengthen Australia’s thin capitalization rules, which are rules that restrict a multinational’s interest deductions when the entity’s debt-to-equity ratio exceeds certain limits.
The proposed law implements changes first announced in government’s 2018-19 budget aimed at closing loopholes in these rules.
In an accompanying explanatory memorandum to the new draft, the Australian government said that, as announced in the budget, the new law would require entities to align the value of their assets for thin capitalization purposes with the value included in their financial statements. The new rules prohibit the practice of revaluing assets specifically for thin capitalization purposes.
Further, the proposed law aims to ensure that foreign-controlled Australian tax consolidated groups and multiple entry consolidated groups that are not non-authorised deposit-taking institutions and that have foreign investments or operations are treated as both outward investing and inward investing entities.
The new provisions would apply as of July 1, 2019.
Comments on the draft law are requested by August 17.
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