On 25 October 2022, the Australian Treasurer Jim Chalmers delivered the Federal Budget for fiscal year 2022-23. The key tax measures are as follows:
Thin capitalization
The Budget amended the thin capitalization rules to limit debt deductions of MNEs to 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA) in line with the OECD’s recommended approach under the BEPS program.
The safe harbor test will be replaced with an earnings-based test that will apply to limit an entity’s debt deductions to 30% of EBITDA. Denied debt deductions (i.e., debt deductions above the 30% EBITDA ratio) can be carried forward and claimed in a subsequent income year (up to 15 years).
Intangibles
The anti-avoidance measure will apply to organizations in Australia who are Significant global entities (SGEs) who make payments, directly or indirectly, in relation to intangibles in low or no tax jurisdictions. The measure is proposed to apply to payments made on or after 1 July 2023.
Public CbC Report
SGEs will be required to prepare and provide for public release of certain tax information. The public Country by Country (CbC) measures fall in line with other similar measures globally, including the EU CbC Reporting directive.
