Australia Issues Thin Capitalization Guidance for Foreign Banks

The Australian Taxation Office issued new guidelines on thin capitalization and debt deductions for branches of foreign banks, detailing which arrangements the tax office will consider risky and worthy of an audit.

The ATO released Draft Practical Compliance Guideline PCG 2026/D1 on Wednesday, supplying banks with a new framework letting them know how risky — as signified by green, amber, or red “zones” — their tax positions are in the eyes of government tax auditors and how to tell which bucket they fall in.

Arrangements in the green zone won’t see much examination by the ATO, beyond making sure they ...