Monday, 5 November 2012

Austrialia issues a discussion paper on the adoption of the Authorized OECD Approach (AOA) for the attribution of profits to PE's

As part of the package of on-going reforms of the transfer pricing rules in Australia , the Government on 24 May 2012 commissioned the Board of Taxation (the BoT) to examine the implications of Australia adopting the authorised OECD approach (AOA) to the attribution of profits to permanent establishments (PEs). Australia's PE attribution rules currently allocate actual income and expenses to parts of the enterprise on a "single entity basis", rather than hypothesising the PE as a functionally separate entity under the AOA.
As such, the BoT had been asked to examine and report on the advantages and disadvantages of Australia adopting the AOA to the determination of profits attributable to a PE in its tax treaty negotiations and in domestic law. The BoT has also been asked to report on whether the existing special rule (contained in Part IIIB of the Income Tax Assessment Act) that limits the deemed interest deduction on internal funds used by foreign banks in their Australia branch operations to LIBOR continues to be appropriate or should be modified.
The BoT has released a Discussion Paper on 30 October 2012 as a means to consult with various stakeholders. The Discussion Paper raises various questions for stakeholders to respond which includes wider issues such as withholding taxes and thin capitalisation. The financial services sector will be a focus area of the BoT review as it is common for banks and insurance companies to typically operate through branch structures. The BoT has invited written submissions by 14 December 2012. The BoT is expected to issue its final report by April 2013.
Source: PKN