Intra-group debtThe current tax law lacks effective measures to prevent excessive interest deductions on intra-group debts.
A multinational enterprise can create intra-group debt between an Australian subsidiary and another overseas subsidiary in a way that interest deductions are claimed in Australia, while the overseas group company may be subject to low or even no tax on the interest income.
This tax avoidance tool is important for a couple of reasons.
The use of this mechanism is very simple for multinationals to implement. Multinationals don’t have to involve third parties, it often doesn’t require any movement of assets, functions or personnel within a corporate group, or any change in operations. In practice, this mechanism “can be created with the wave of a pen or keystroke”.