Australian Tax Office says company may deduct interest on debt owed nonresident entity despite interposed entities

The Australian Taxation Office on March 19 ruled that a nonresident entity that invests indirectly in an Australian resident company through one or more interposed entities where the final leg in the chain is a debt interest does not create a scheme or a series of schemes designed to operate so that the returns on the debt interest are used to fund returns on what is in substance equity held by another person.under paragraph 974-80(1)(d).

The return on the debt interest paid by the Australian entity is merely a source of funds which may be used by the parent entity to fund equity returns, the ATO said.

See:

• TD 2015/2