Cross-border Tax Talks

Australia Tax Update: Developments down under

Doug McHoney (PwC’s International Tax Services Global Leader) is joined by Sarah Hickey, a PwC Australia International Tax Partner and the Australian tax desk leader in New York City. Doug and Sarah discuss Australia’s corporate tax landscape (30% headline rate; new thin-cap at 30% of tax EBITDA with a retrospective integrity rule on related‑party debt), investment incentives, the two‑speed CFC regime and “use it or lose it” foreign tax credits, and dividend, interest, and royalty withholding. They cover the diverted profits tax (40% rate; 12‑month evidence window), Pillar Two timing, public CbCR and short‑form restructure disclosures due by end‑2025, and indirect taxes including non‑resident CGT and stamp duty. Finally, they unpack the High Court’s Pepsi decision—no royalty derivation by the US, a 4–3 win on royalties and DPT—and why contract wording anchors royalty analyses. 

• 00:45: Introduction: first impressions of American politeness and sports fandom. 
• 03:35: Why personal and corporate taxes matter to Australia’s economy; reliance versus OECD averages. 
• 06:30: Corporate tax rate; new thin‑cap: 30% of tax EBITDA plus added integrity rule affecting related‑party asset acquisitions, including legacy debt. 
• 10:30: Incentives landscape: R&D concession, investment manager regime, OBU repeal, video‑games tax offset. 
• 12:10: CFC regime: ‘good countries’ generally exempt; non‑portfolio dividend exemption on repatriation. 
• 14:20: Withholding taxes—dividends, interest, royalites, and treaty reductions  
• 17:00: Diverted profits tax: MAL/DPT framework; 40% rate; 12‑month evidence window and admissibility rules. 
• 19:45: Pillar Two in Australia: IIR/UTPR/QDMTT commencement and filing  
• 21:45: Section 899 discussion: UTPR/DPT sensitivity; Australia’s 10% tariff status  
• 23:00: Imported hybrid mismatch rules: Australia’s ‘triple somersault’ approach and extraterritorial reach. 
• 25:30: Transparency: public CbCR scope exceeds EU baseline; ATO draft exemptions for secrecy/commercial sensitivity. 
• 28:05: Short‑form restructure report: DAC6‑style triggers for significant restructures involving Australia. 
• 31:00: Indirect taxes: non‑resident CGT for land‑rich entities; possible expansion to infrastructure; state stamp duty traps. 
• 33:05: Pepsi case: background and judicial path. 
• 39:55: Case takeaways: contract terms first, then substance; implications for software/IP distribution models. 

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