miércoles, 27 de octubre de 2010

Australian Taxation Office releases finalised taxation ruling on the interaction between the thin capitalisation and transfer pricing provisions

Background
On 27 October 2010, the Australian Taxation Office (ATO) released the finalised Taxation Ruling (TR) 2010/7, entitled “Income tax: the interaction of Division 820 of the Income Tax Assessment Act 1997 and the transfer pricing provisions” (the Ruling). The Ruling formalises and expands on the views that the ATO had put forward in its previous draft ruling, TR 2009/D61.
The key focus issues of the Ruling are the:
1)  interaction of the transfer pricing provisions(Division 13) and Australia’s thin capitalisation provisions(Division 820), and
2)  methods and approaches for determining an arm’s length consideration on inbound related party loans under Australia’s transfer pricing rules.
The Ruling is to apply both prospectively and retrospectively. It is important to note that in Australia there is no time limit for the enforcement of a transfer pricing adjustment by the ATO.
The key messages are outlined in further detail below.
The interaction between the thin capitalisation and transfer pricing provisions
The Ruling confirms the ATO’s view that Division 13 applies independently of Division 820 in determining the allowable deduction for a taxpayer’s related party debt. The transfer pricing provisions are to be applied first to determine an arm’s length interest rate. The arm’s length rate is then applied to the actual amount of the loan. The Ruling provides four examples to demonstrate possible scenarios involving the interaction of Division 13 and Division 820 to a taxpayer’s related party debt.
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  1. Entitled “Income tax:  the interaction of Division 820 of the Income Tax Assessment Act 1997 and the transfer pricing provisions in relation to costs that may become debt deductions, for example, interest and guarantee fees”.
  2. As found in Division 13 of Part III of the Income Tax Assessment Act 1936 and the relevant provisions of Australia’s tax treaties.
  3. As found in Division 820 of the Income Tax Assessment Act 1997.

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