Super funds seek exemption from multinational tax capture rules

Mike Taylor

Managing Editor/Publisher, Financial Newswire

9 September 2022

Australia’s major superannuation funds are arguing that they should be exempted from the Government’s proposed reforms aimed at better capturing multinational companies.

The Association of Superannuation Funds of Australia (ASFA) has told Treasury’s Tax Division that given that Australian complying superannuation funds are Australian taxpayers and fully subject to Australian tax on their investments, they should be exempted.

“Complying superannuation funds are not the type of entities that the rules are intended to capture. Exempting them would significantly reduce compliance burden while continuing to promote investments in Australia by the superannuation industry, and would not pose a risk to the Australian tax base,” the ASFA submission said.

ASFA said it also supported the retention of the arm’s length debt test (ALDT) in its current form and was recommending the introduction of a ‘public benefit exemption’ for infrastructure and property sector assets that provide a net public benefit to the community, grandfathering provisions for existing assets if the ALDT is to be modified, and a ‘carry forward or back’ rule as part of the fixed ratio rule.

The submission said that ASFA there should be a general exemption for Australian superannuation funds from the thin cap rules (including their wholly owned and majority owned Australian investment vehicles).

“We understand the intention of the Government tightening the thin cap rules is to address base erosion and profit shifting. However, unlike Australian corporates that invest overseas in circumstances where the returns on their investment may be treated as non-assessable non-exempt income, Australian superannuation funds do not benefit from this treatment. As such, the returns from their investments will be brought back to be taxed in Australia.”

ASFA said that changes to the thin cap rules might encourage a reduction of the overall gearing of foreign investments held by Australian superannuation funds.

“This is likely to result in higher foreign taxes paid on foreign investments (for example, dividend withholding rates are typically higher than interest withholding tax rates) and higher foreign income tax offsets claimed by Australian complying superannuation funds,” it said. “This would lead to a reduction of Australian taxes collected.”

“Further, as the debt obtained by a superannuation funds (through its associates, for example, wholly-owned vehicles) for its investments is usually with third parties and not related parties, ASFA considers there is no mischief in the debt deductions claimed indirectly by Australian superannuation funds – superannuation funds (and their associates) are not the types of entities that the thin cap rules are intended to capture.”