• Service: Tax, Global Transfer Pricing Services
  • Type: Regulatory update
  • Date: 9/26/2013

Australia - Profit shifting through artificial loading of debt 

September 26:  With the release of an Australian Treasury Paper, Addressing profit shifting through the artificial loading of debt in Australia, two key issues have arisen for taxpayers:
  • The safe harbour for debt has been reduced from 75% of gross assets, to 60% of gross assets effective 1 July 2014.
  • More taxpayers will be required to rely upon the "arm’s length" debt test, which is currently being reviewed by the Board of Taxation.

Given the increasing reliance on the arm’s length-debt test, taxpayers need to start examining their debt arrangements now to be in compliance with thin capitalisation requirements.

KPMG observation

Simplifying the method for ascertaining whether the arm’s length test is satisfied helps provide greater certainty for taxpayers and the Australian Tax Office alike. To this end, the arm’s length test:

  • Must be satisfied when the lender’s are not associates
  • Must not be an annual test, but apply only at the time debt is issued or its terms materially change
  • Could introduce certain ratios or data sets to provide industry specific guidance that this test is satisfied

Read a September 2013 report prepared by the KPMG member firm in Australia: Time to review
your debt positions

Contact a tax professional with KPMG's Global Transfer Pricing Services.

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