Treasury has commenced consultation on an anti‑avoidance measure that prevents large multinationals from claiming tax deductions for payments relating to intangibles connected with low corporate tax jurisdictions.

Just over two weeks after commencing consultation on exposure draft legislation in relation to proposed legislative amendments to “strengthen” Australia’s thin capitalisation regime, Treasury has commenced separate consultation on exposure draft legislation relating to the other key component of the Government’s pre-election and Budget commitments – an anti-avoidance measure that will deny income tax deductions for certain payments relating to intangible assets connected with low corporate tax jurisdictions (the Proposed Measure).

THE PROPOSED MEASURETreasury Commences Consultation On Offshore Intangible Asset Measure

The exposure draft legislation and accompanying explanatory material describe the Proposed Measure substantially as expected, albeit with some surprises.

Broadly, the Proposed Measure will deny income tax deductions for certain payments made by a Significant Global Entity (SGE) to an associate1 on or after 1 July 2023 under an arrangement that results in income from the exploitation of an intangible asset being derived in a ‘low corporate tax jurisdiction’.  

Key aspects of the Proposed Measure include:

  •    The term ‘low corporate tax jurisdiction’ refers to a foreign country where the headline corporate income tax rate (cf. the relevant entity’s effective tax rate) is less than 15% after adjustments are made for certain items (e.g., disregard the concessionary treatment of intra-group dividends, tax rates applicable only to non-residents, etc.);
  •    Broad application to ‘arrangements’ generally, which will extend application of the Proposed Measure to undocumented arrangements and indirect payments;
  •    Specific provisions to ensure liabilities incurred or amounts credited to associates are captured, in addition to actual payments; and
  •    Provision for the Minister to proscribe specific tax preferential patent box regimes in addition to ‘low corporate tax jurisdictions’. This extends application of the Proposed Measure to countries wherein proscribed tax preferential patent box regimes operate and there is insufficient economic substance therein.


Disappointingly, but as foreshadowed, the Proposed Measure does not include a ‘purpose’ or ‘motive’ test, and neither does it have regard to the substance of arrangements. Instead, the presumption is that SGEs ‘choose’ to derive income from exploiting intangible assets in jurisdictions that provide the most favourable tax outcomes.

Additionally, notwithstanding that the core tests operate by reference to the headline corporate income tax rate in the relevant foreign country, proposed paragraph 960-258(2)(e) provides that where there are different rates of income tax for different types of income, regard must be had only to the lowest rate (with the exception of progressive tax regimes where regard must be had only to the highest possible rate).  This is potentially problematic, given the ubiquity of foreign countries providing for the concessionary treatment of certain income types (beyond dividends).

Clarification on or amendment of the proposed operation of this particular aspect of the Proposed Measure would be welcome.

Furthermore, the Proposed Measure captures indirect payments and extends beyond back-to-back arrangements as further integrity. However, as indicated in the explanatory materials it is not necessary to demonstrate that each payment in a series of payments funds the next payment or is made one after the other. Rather, it is sufficient if the payment exists between each entity.

This aspect of the Proposed Measure poses a high compliance burden as MNEs will be required to capture all payments made between its associates to determine if a payment made by SGE relating to an intangible asset may be connected to a low corporate tax jurisdiction.  

The ‘less than 15%’ requirement also departs from how the Proposed Measure was described in the Parliamentary Budget Office’s Election Commitments Report, wherein reference was made to the ‘sufficient foreign tax test’ contained in section 177L of the Income Tax Assessment Act 1936 (ITAA 1936), which would have effectively set the threshold at 24% (i.e., 80% of 30%).

Not only is this interesting from the perspective of whether the lower threshold is expected to augment forecast revenue of $1.85bn, it also brings into question the congruity of the Proposed Measure with the OECD Pillar Two initiatives, which include the 15% global minimum tax rate.


Consultation of the Proposed Measure will end on 28 April 2023, which is approximately two months prior to the effective date of 1 July 2023. Similar to the proposed thin capitalisation amendments, such haste seems inappropriate given the magnitude of the Proposed Measure and leaves precious little time for potentially impacted multinational enterprises to adapt or respond to the Proposed Measure.

For more information

If you want to discuss how the Proposed Measure may impact your organisation, please contact International Tax and Transfer Pricing Lead Partner Liam Delahunty or your local RSM office.