The Federal Government last week released the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023 (the “Bill”). The Bill, among other things, includes significant reforms to the thin capitalisation regime in Division 820 of the Income Tax Assessment Act 1997 (Cth) (“1997 Act”). The first version of these reforms was released in Exposure Draft form in March 2023.
The ASF made submissions to Treasury on several aspects of the Exposure Draft which could have had detrimental effects on participants in the securitisation industry. Those submissions were largely accepted and are now reflected in the Bill.
The amendments were intended to largely exempt financial entities from the new thin capitalisation rules, but the Exposure Draft unexpectedly modified the definition of “financial entities” to leave out entities which are “a registered corporation under the Financial Sector (Collection of Data) Act 2001”. The change would have resulted in many non-banks becoming “general class investors” subject to the new rules.
The ASF strongly advocated for the retention of that category. In response to Treasury’s concerns about its breadth, the ASF suggested that such entities also be required to substantially derive their profits from the provision of finance. This suggestion was adopted by Treasury, with a new requirement that such registered corporations carry on a business of providing finance to non-associates, and derive substantially all of their profits from that business.
The Exposure Draft also did not extend the general exemption from the thin capitalisation rules for insolvency-remote special purpose entities in section 820-39 of the 1997 Act to “general class investors”. This could have had the result that certain non-consolidated securitisation vehicles, as well as consolidated securitisation vehicles where the head company is classified as a general class investor, could not access the exemption.
The ASF advocated for the extension of section 820-39 to general class investors and was successful in that effort.
There still appears to be some lack of clarity around the classification of head companies of consolidated groups where there are financial entities within the group, however the amendments to the definition of “financial entity” discussed above largely mitigate this issue for members.
While it will be important for all members to consider whether the Bill will affect their business, the ASF’s advocacy has substantially reduced the impact of the reforms to the securitisation industry. The Bill has not yet been passed but is intended to come into effect from 1 July 2023. It has been referred to the Senate Economics Legislation Committee with a report due by 31 August 2023.
More information on the Bill is available from ASF member, King & Wood Mallesons. Click here.