Submission to the exposure draft on denying deductions for payments relating to intangible assets connected with low corporate tax jurisdictions

20 July 2023

The Business Council welcomes the opportunity to provide a submission to the consultation on proposed changes to deny deductions for payments relating to intangible assets connected with low corporate tax jurisdictions.

All companies must meet their tax obligations and where arrangements do not keep pace with community norms, they should be reviewed. Robust tax integrity and transparency measures are an integral complement to more competitive business tax arrangements.

Australia has some of the strongest tax integrity rules in the world, and they have been strengthened over time.Existing integrity measures, institutions and enforcement all contribute towards and complement a high level of compliance with our tax system. The Australian Taxation Office (ATO) is a strong, capable, active and well-resourced administrator, with extensive powers and a strict interest and penalty regime. The ATO workforce focused on la -to-one engagement with large companies for assurance over approximately two-thirds of all corporate tax (around $60 billion).

The BCA urges the government to follow through with its commitment 12 months ago to introduce a measure to carefully target activities deliberately designed to minimise tax without creating an extra burden on legitimate business activity.The proposal as it currently stands does not achieve these objectives. It is still unclear with this proposal what the precise problem to be solved for is or why are inadequate. At the same time, the proposed measure has a potentially wide application that creates enormous uncertainty, significantly higher compliance activity and costs, the potential for double taxation and reduces incentives to invest in Australia.

The tax system must ensure that the Australian economy, which is heavily reliant on trade and foreign investment, remains competitive, strong and continues to grow. A frontier economy is one in which Australian firms and industries are at the global cutting edge of new value creation and productive efficiency. Being at the frontier will lay the groundwork for delivering more productive, higher paying, and more secure jobs. This relies on businesses and governments adopting new technologies, new software tools, taking advantage of data, adopting new processes, increasing research and development, and increasing cyber resilience. Simply put, having access to these intangible assets is becoming increasingly important. But Australia is an international laggard when it comes to intangibles investment and the policy environment is becoming increasingly antipathetic to it.

The proposed changes will significantly increase the cost of doing business in Australia, alongside several tax and other related measures. It is therefore critical to maintain a competitive business environment overall, while signalling to investors that Australia is open for business.

You can read our full submission here. 


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