Australian Miners Critical Of Labor’s Thin Cap Plans
The Minerals Council of Australia (MCA) has warned against international tax proposals, including changes to thin capitalization rules, that have been put forward by the Opposition in Australia.
The Council said that any changes to the thin capitalization rules – which it said are already among the world’s most robust – must be carefully considered. It said the changes proposed would impact investment in Australia by limiting legitimate tax deductions for interest expenses, adding that this would particularly harm the ability of capital intensive industries, such as mining, to debt fund investment in Australia.
Australia’s Labor Party recently proposed a reduction in the amount of debt that multinationals can claim deductions for in Australia under the thin capitalization rules, with deductions to be assessed on the debt-to-equity ratio of a company’s entire global operations.
Commenting on the proposal, the MCA said on March 2, 2015, that the proposed changes are arbitrary and would fail to tackle tax avoidance specifically.
The MCA noted that the Organisation for Economic Co-operation and Development’s (OECD’s) work on base erosion and profit shifting (BEPS) “is the most effective and appropriate way to deal with global tax avoidance,” and “Australia should continue to work cooperatively in a coordinated way through the OECD’s BEPS process.”
The MCA continued: “Australia’s tough thin capitalization rules were strengthened from July 1, 2014, and any further changes would add to perceptions of sovereign risk of investing in Australia. Australia’s ‘safe harbor’ test was reduced from 75 percent of debt-to-equity to 60 percent and includes a broader range of debt compared with many other countries. It includes ‘total debt’ versus more narrowly defined ‘related party’ debt.”
