ADI inward investing entity

Section 820-597 of the ITAA 1997 allows a permanent establishment of a foreign bank to join a consolidated group.

See also:

• section 820-960 of the ITAA 1997.

The four steps an ADI inward investing entity takes to calculate if they have met the thin capitalisation rules are:

• Step 1: Calculate the average equity capital
• Step 2: Calculate the safe harbour capital amount
• Step 3: Calculate the arm's length capital amount
• Step 4: Calculate the debt deductions disallowed.

Record keeping

An ADI inward investor carrying on business at or through a permanent establishment with total revenues attributable to that permanent establishment of at least $2 million are subject to certain record keeping requirements. These requirements are financial statements, including all the necessary notes. They must be prepared for its Australian permanent establishment using the Australian accounting standards or the accounting standards of Germany, Japan, France, USA, UK, Canada, New Zealand or the international accounting standards.

Summary flowchart

This flowchart summarises the steps an ADI inward investing entity follows to work out whether any of its debt deductions are disallowed and the amount of the disallowed deductions.

Flowchart 9: ADI inward investing entity's steps to work out if any of the debt deductions are disallowed