The Abbott Government will move to close loopholes that allow multinational corporations to shift profits and losses across international jurisdiction to minimise their tax bills. The move comes after Fairfax media revealed that Swiss-based coal miner, Glencore, paid almost no company tax in Australia over the past three years, despite generating income of $15 billion, by using tax deductions from $3.4 billion in expensive loans to its Australian subsidiary. From The Canberra Times:
In the Treasurer’s sights are the so-called ”thin capitalisation” arrangements adopted by companies where they load up debt in parts of the business located in high tax jurisdictions in order to minimise taxable income.
This would reduce the amount of debt a company can carry on its books relative to its asset holdings.
Under the new system, the maximum ratio of debt to equity a company can present in its structure will drop from 75 per cent under the current rules to 60 per cent.
Companies with debt levels beyond that threshold will automatically attract the special attention of the Australian Tax Office.
The Abbott Government plans to introduce the new thin capitalisation rules into Parliament in two weeks, and is reported to have received support from Labor and most cross-bench senators, ensuring the legislation’s passage through the Senate.
According to The AFR, some private equity firms have already told Treasurer Hockey that they “will have to pay up to $300 million in additional tax because of the new debt rules on existing investments in Australia”.
Moreover, the reforms are likely only the first salvo against multinational tax avoidance, with Treasurer Hockey keen to make tax-base erosion and profit-shifting a top priority at the G20 summit’s main meeting in Brisbane in November:
“We are determined to create a level playing field for taxation of businesses so that a large multinational faces the same tax environment as a small business on the corner,” Mr Hockey said.
“But, we need a global solution to a global problem and we need a solution that will work and is not cosmetic.”
Other reforms aimed at cutting multinational tax avoidance include “new consolidation rules for mergers and acquisitions, which will be introduced to Parliament in September and restrictions on capital gains tax discounts for foreign residents which will also be introduced this month”.
All up, the measures are expected to bolster Budget revenues by some $2 billion over the next four years.
