Australian Treasury releases updated Exposure Draft Bill to deny deductions for payments relating to intangible assets made by significant global entities to low-tax jurisdictions

Tax Alert 2023 No. 02, 29 June 2023

At a glance

• Rule will apply to payments made on or after 1 July 2023.
• Substantive requirements have not changed materially.
• Definition of low corporate tax jurisdictions has been clarified.
• Consideration given for amounts which have otherwise been subject to tax at a rate of 15%.
• No specific consideration of Pillar 2 minimum taxes.
• Royalty withholding tax amounts will be considered in determining the amount denied.
• Introduction of a new penalty should the rule apply to deny a deduction.
• How EY can help.

Updated exposure draft legislation (updated ED) to implement a new anti-avoidance rule has been released by Treasury. The updates have considered feedback provided during the consultation phase, but the rules will apply to payments made on or after 1 July 2023.

Under the proposed measure, the rule will deny a deduction for payments that a significant global entity (SGE) makes to associates that are attributable to a right or permission to exploit an intangible asset if, due to the arrangement or a related arrangement, the associate directly or indirectly derives income from exploiting those or related intangible assets in a low corporate tax jurisdiction.

Treasury has considered the feedback provided by consultees during the consultation phase and has made significant updates to the proposed measure although the substantive requirements remain largely the same.