Australian Board Of Taxation To Review Tax Rules
05 June 2013
Posted by: Author: Mary Swire
Author: Mary Swire
The Australian Government has asked the Board of Taxation to review the thin capitalization arm's length test and consider where changes can be made to improve the debt and equity tax rules.
The reviews are the result of a Government reform package designed to protect the integrity of the corporate tax system and ensure a stable source of revenue. First announced by Treasurer Wayne Swan as part of his 2013-14 Budget, his assistant, David Bradbury, has now released the reviews' terms of reference.
According to Bradbury: "In its current form, the arm's length test imposes high compliance costs on taxpayers and can be difficult for the Australian Taxation Office to administer." The Board has been asked to investigate how the test can be modified, with the aim of reducing the scope for profit shifting and protecting those sectors with naturally higher gearing. It is also required to make recommendations on ensuring the test's ease of use and for reducing the associated compliance burden.
The second review will consider whether the debt and equity tax rules give effect to the Government's policy intent, are expressed in a clear and workable manner, avoid unintended consequences, take account of actual taxpayer circumstances and commercial practice, are consistent with other tax legislation, and provide certainty.
The Board will also examine whether any inconsistencies remain between Australia's regime and other jurisdictions' rules. As Bradbury explained, "The 'economic substance' approach taken by Australia is not widely used in other jurisdictions. As such, there may potentially be unintended misalignments with other provisions in the law which would result in policy inconsistencies."
The Board is requested to report back to Bradbury on the thin capitalization rules by December, 2014, and on the debt and equity legislation by March, 2015.