Thin capitalisation: experts discuss just what 'arm's length' means


“I’ve been trying to get away from this subject for years but just like Michael Corleone in Godfather III, every time I think I’m out, they drag me back in. Help."

That's what Shahzeb Panhwar, Assistant Commissioner in Public Groups and International at the ATO quipped about the topic of thin capitalisation rules when we caught up with him ahead of the 2020 National Infrastructure Online Conference. Currently looking after International Programs and Engagement for the ATO, Shahzeb is an expert in the field - though he remains humble about his role in tax thought leadership.

"My role is mostly to provide comic relief and light entertainment at various conferences nationally," he quipped.

Shahzeb, alongside Cindy Perryman, corporate tax partner at Deloitte, will be presenting Part 3: Thin capitalisation rules - how arm’s length is arm’s length? on 27 October 2020 at 1:00 pm. And even if you come for his witty one-liners, you'll stay for the practical insights offered up in the session.

“We’ll be discussing one of the more recent developments in the world of thin capitalisation, specifically, the new guidance on the use of the Arm’s Length Debt Test," Shahzeb explained.

"This topic, and financing more generally, has been of great interest to me since early in my career. Since joining the ATO in 2014 I’ve been largely responsible for the ATO’s work in the intercompany financing/thin capitalisation space.”

Shahzeb explained that since the reduction in safe harbour from 3:1 to 1.5:1, the use of the ALDT has been growing significantly, making this an important topic for tax practitioners to have a strong understanding of.

"Combined with the likely recent impact on asset values of COVID-19, the ALDT will likely be high in the consideration of many corporations looking to comply with their thin capitalisation obligations," he said.

And if there's one thing you can take away from this session, Shahzeb said, it's this: "What’s possible and what’s reasonable aren’t always the same thing."

Recap: Issues in a post-staple reform world

Last week at the  2020 National Infrastructure Online Conference, Matt Ervin, Director in KPMG’s Deal Advisory Tax group, Shirley Lam, Director in KPMG’s Deal Advisory Tax practice and Jason Heng, Assistant Commissioner in the Tax Counsel Network at the ATO, presented on the recent Treasury review of stapled entities, culminating in the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019.

"Following the 2018 amendments to the Managed Investment Trust (MIT) regime the role and appropriateness of stapled structures for infrastructure assets has been fundamentally changed Now that transitional elections have been made, our session will focus on some of the ‘live’ issues in existing structures along with the role of the stapled structure in future projects," Matt explained.

"Much has been said about staples over the past 3 years, however these structures are likely to have an ongoing role in infrastructure developments for some time to come."

Matt said that infrastructure developments are likely to be a focus area for post-COVID stimulus measures. And though the stimulus measures come from government, "there will be a key role for private capital in enabling this recovery."

"Through the nationally significant economic infrastructure project concessions, stapled structures will potentially have a role in maximising the benefit of this stimulus spending," Matt said.

Attend the 2020 National Infrastructure Online Conference

The 2020 National Infrastructure Online Conference runs until 12 November 2020, with plenty of insightful sessions to attend in the coming weeks. To find out more about the state of Infrastructure in Australia today, register to attend!

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About the speakers

Shahzeb Panhwar is an Assistant Commissioner in Public Groups and International and heads up the International Programs and Engagement area at the ATO. Shahzeb has previously had roles including International Tax Structuring, overseeing Operations teams in Docklands and managing the Dispute Resolution program within Public Groups & Internationals.

Cindy Perryman is a corporate tax partner at Deloitte in Melbourne and specialises in advising on financing issues related to inbound and outbound investments. Cindy has a focus on thin capitalisation and in particular the arm’s length debt test, having been involved in drafting the public guidance on the test when formerly at the ATO.

Matt Ervin is a Director in KPMG’s Deal Advisory Tax group with extensive experience advising on transactions in the infrastructure and property sectors. Matt acts for financial and strategic investors on a wide range of social and economic infrastructure transactions, including privatisations, renewable energy developments, public private partnerships, social housing and secondary transactions.

Shirley Lam is a Director in KPMG’s Deal Advisory Tax practice, with over a decade of experience. Shirley advises both Australian and international investors on their tax affairs, projects and transactions, focusing on infrastructure and energy and resources.

Jason Heng is an Assistant Commissioner in the Tax Counsel Network at the ATO, where he provides technical guidance on a broad range of corporate and investment industry tax matters. Jason previously spent several years leading the ATO’s resolution of disputes in the Private Groups and High Wealth Individuals market. Prior to joining the ATO, Jason worked in private practice with a focus on taxation in the financial services industry.



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