The head of the Australian Tax Office, Chris Jordan, has described a tax lurk for multinational companies that is being retained by the Abbott government as having been "abused" by foreign corporations at a cost of "hundreds of millions of dollars" a year to the Commonwealth.

As revealed by Fairfax Media, Treasurer Joe Hockey has backed away from a pledge to introduce a targeted "anti-avoidance provision" to tighten generous deductions available under the Income Tax Assessment Act 1997.

Tax Commissioner Chris Jordan has said that a tax lurk for multinational companies has been abused by foreign companies to a cost of hundreds of millions of dollars a year. Credit:Bohdan Warchomij

The deductions have been used most ruthlessly by foreign-based companies that load debt into their Australia entities and then claim deductions from the tax man on the interest paid on those borrowings.

Following consultation with stakeholders, which largely included tax experts from the big four accountancy firms and the Corporate Tax Association, which represents the biggest listed companies, the government was convinced not to tinker with section 25-90 of the act because it would, tax experts said, "hit the wrong target".