In this update we discuss the proposed changes to restrict tax relief for mergers & acquisitions, Mitsui’s loss in a tax dispute regarding an acquired petroleum project, and the proposed withholding tax concessions for foreign investments in Australian clean energy buildings.

This Australian tax update highlights the key taxation proposals relevant to foreign investors announced in the Australian federal budget on 8 May 2012. Additionally, we briefly outline the two major new taxes to commence in Australia on 1 July 2012 – the mining tax and the carbon tax.

The Australian Government has announced its intention to revise the Australia’s general anti-avoidance rules. This will give the ATO greater power to cancel tax benefits arising from arrangements entered into for the dominant purpose of avoiding tax.

The Australian Government is proposing a revision of Australia’s transfer pricing rules. This will primarily impact intra-group transactions between Australian subsidiaries and their foreign parent companies.  

The Australian Government intends to make retrospective changes to the taxation of the M&A transactions which limit the amount of future deductions relating to the target assets that will be available to the acquirer.

Australia’s mining tax on iron ore and coal projects is intended to start on 1 July 2012. We expect the mining tax to be passed by the Australian Parliament in the last sitting week in March 2012.