A just reprieve

Australian companies with offshore operations or foreign parents have been given a reprieve from potentially increased tax liabilities as the Government attempts to tackle the critical tax issues associated with the implementation of International Financial Reporting Standards (IFRS).

KPMG tax partner, Matt Hayes, notes “KPMG is extremely pleased that the Government has chosen to introduce a three year transitional period into the thin capitalisation tax rules. This relieves taxpayers from the prospect of having to make remedial IFRS capital management tax decisions at a time when IFRS has not been fully implemented.

“However, this is only a stopgap measure and two important points need to be remembered, bearing in mind that the potential conflicts between IFRS reporting methods and the thin capitalisation tax rules are ongoing,” said Hayes.

Firstly, in the transitional period, a taxpayer’s IFRS information systems will still need to identify key adjustments back to pre-IFRS accounting numbers to meet the interim concessions.

“Current IFRS conversion projects need to factor in this variable to mitigate the prospects of having to go back and produce another set of tax accounts at tax time,” said Hayes.

Secondly, Australia must come up with a revised thin capitalisation tax regime that is not an impediment to long-term business investment. Possible long-term consequences of IFRS include the non-recognition of various intangible assets and greater volatility of net asset values arising from fair value accounting.

“We need a long-term thin cap solution that, while cognisant of tax policy, is nevertheless practical, investment friendly and does not impede the long-term capital management decisions of business,” said Hayes.

Further information at:

http://www.kpmg.com.au/Default.aspx?TabID=214&KPMGArticleItemID=1145