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Reply: 1.1.2
From: Tom Cleary
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Serge
Have not had a chance to have a good look at how the Act is different =from present rules
The concept of thin capitalisation was imported from England a few years =ago to counter transfer pricing by multinational organisations which =were charging high interest rates to its subsidiary to minimise the =profits in Australia and therefore tax payable. Often these coeporations =were headquartered in low or no tax countries eg Bahamas, Ireland etc.
What the present act seems to want to capture is the situation where =there is genuine borrowings from a third party by HQ and the cost of =these borrowings are then allocated on a divisional basis, which is =normally kosher and legal but they want to confine the scope within =limits which the ATO is laying down, otherwise the full amount of =interest allocated will not be claimable in Australia, therefore =increasin reported profit and tax payable by the local entity.
I.E. it is the widening of the scope of the act to third party =borrowings and their cost accounting allocation to divisions in =Australia.
However as I said I have not researched the situation enough at present =but that is how it reads to me.
Regards
Tom
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Serge
Have not had a chance to have a good =look at how
the Act is different from present rules
The concept of thin capitalisation was =imported
from England a few years ago to counter transfer pricing by =multinational
organisationswhich were charging high interest rates to its
subsidiaryto minimise the profits in Australia and therefore tax =payable.
Often these coeporations were headquartered in low or no tax =countrieseg
Bahamas, Ireland etc.
What the present act seems to want to =capture is
the situation where there is genuine borrowings from a third party by HQ =and the
cost of these borrowings are then allocated on a divisional basis, which =is
normally kosher and legal but they want to confine the scope within =limits which
the ATO is laying down, otherwise the full amount of interest allocated =will not
be claimable in Australia, therefore increasin reported profit and tax =payable
by the local entity.
I.E. it is the widening of the scope of =the act to
third party borrowings and their cost accounting allocation to divisions =in
Australia.
However as I said I have not researched =the
situation enough at present but that is how it reads to me.
Regards
Tom
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