Chevmon Australia Ltd is a subsidiary of Chevmon Co, which is headquartered in the USA and is a significant global entity. Last financial year, Chevmon Australia paid Chevmon Co $2 billion of interest on loans that Chevmon Co provided to the Australian subsidiary. If the interest rates charged on those loans by the US parent company were 5 times the interest rate that the subsidiary could have obtained, is this arrangement likely to be affected by Australia's new diverted profits tax?

Question

Quizplus · Accepted Answer

The diverted profits tax is designed to prevent multinational companies from shifting profits out of Australia to avoid tax through arrangements that artificially inflate the costs of funding or services provided by related offshore entities. Charging an interest rate 5 times higher than the market rate would likely be seen as an attempt to shift profits out of Australia, making this arrangement a target for the diverted profits tax.

Chevmon Australia Ltd Is a Subsidiary of Chevmon Co, Which