Multinationals cry foul at budget's corporate tax changes
BP's comments were indicative of the mood across the business sector in the wake of Tuesday's budget, which imposed several tax increases on multinationals, the resources sector and companies hiring foreign workers.
Multinationals were targeted by tighter "thin capitalisation" rules, which will effectively reduce the size of tax deductions available to big companies using disproportionate amounts of debt to fund their Australian projects.
The changes will affect the big banks as well as multinational oil and gas companies operating in Australia, with Chevron and BP considered to be most affected by the rule.
While he played down the impact of the changes, a BP spokesman said changes to thin capitalisationd rules would not help Australian resources projects come to fruition.
"Regarding the specific measure of changes to thin capitalisation rules, we do not believe these will have a significant impact on investment. However, restricting options for funding projects is not aligned to a pro-growth agenda," he said.
"BP believes that there is a need for a national conversation on the whole tax system, not just business tax, and would agree with commentators who are suggesting that the budget is a missed opportunity to commit to genuine long-term tax reform aligned to the principles of the Henry tax review."
Deloitte international tax partner Peter Madden warned firms trying to grow overseas would also be affected by the change, calling it a "backward step".
Thin capitalisation was one of several corporate tax changes expected to deliver a total of $4.2 billion worth of savings to the budget over four years.
The budget also revealed a clampdown on tax deductions for Australian-based offshore banking units. The units are designed to help Australian banks win business in overseas markets and have delivered multimillion-dollar tax breaks to the big four banks and Macquarie group.
Australian Bankers Association spokesman Steven Munchenberg said the changes appeared to go beyond what was necessary to protect the integrity of the tax system, and he urged the government not to hamper Australian banks' bid to win a share of the growing Asian market.
Frequently Asked Questions about this Article…
The budget tightened thin capitalisation rules so large companies using disproportionately high levels of debt to fund Australian projects will face smaller interest tax deductions. The change is aimed at multinationals and will reduce the size of tax deductions available to those firms.
The changes target multinationals, the resources sector and companies hiring foreign workers. Big banks and major oil and gas operators — with Chevron and BP singled out — are expected to be most affected by the thin capitalisation adjustments.
BP described the budget as a "missed opportunity" for broader tax reform. A BP spokesman said the thin capitalisation changes wouldn’t necessarily have a significant immediate impact on investment but argued that restricting funding options isn’t aligned with a pro‑growth agenda and could hinder resources projects coming to fruition. BP also called for a national conversation on the whole tax system, referencing the principles of the Henry tax review.
According to BP’s spokesman, the company does not believe the specific changes will have a significant impact on investment, but cautioned that limiting funding options is not pro‑growth and could make it harder for some resources projects to proceed. Other commentators and advisers have also warned of potential negative effects on firms expanding overseas.
Deloitte international tax partner Peter Madden described the thin capitalisation changes as a "backward step," warning that firms trying to grow overseas would also be affected by the tighter rules.
The budget clamps down on tax deductions for Australian‑based offshore banking units, which are used by banks to win business overseas. These units have previously delivered multimillion‑dollar tax breaks to the big four banks and the Macquarie Group, and the change directly affects those arrangements.
The suite of corporate tax changes, including thin capitalisation reforms, is expected to deliver about $4.2 billion in savings to the federal budget over four years.
Everyday investors should keep an eye on company announcements from affected groups (for example, major banks, BP and Chevron), any revisions to project funding or growth plans, and commentary from industry bodies. The article highlights risks around funding options for resources projects and impacts on banks' offshore activities — both of which could influence profitability and long‑term investment prospects.
Call 1300 880 160
Start a chat
Schedule a call
