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Australia Tightens Tax Rules on Debt Capital in Final Guidance

March 26, 2020, 1:47 PM

Multinationals operating in Australia have final guidance that tightens the way they value debt capital, preventing them from shifting profits overseas through excessive levels of tax-deductible debt.

A multinational’s debt capital—"any debt interests issued by the entity that are still on issue"—consists of financial instruments that are debt or liabilities, as well as equity, according to final guidance from the Australian Taxation Office.

  • The rules are designed to reduce the ability of highly leveraged or thinly capitalized businesses to make intergroup loans to artificially create costs and report less taxable profit.
  • Thin capitalization refers to a situation in...
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