Transfer Pricing rules getting serious attention
Recent changes are outlined below:
July 1, 2022
- Loss carry back for eligible companies extended to cover 2023 income year.
- Professional firm profits diverted to the professional's spouse or other associates to be reviewed under new Tax Office guidance.
- Corporate collective investment vehicle legislative regime introduced.
- Temporary full expensing of depreciating assets extended to include 2023 income year.
- Depreciable assets of a company joining a tax consolidation group have tax costs setting rules modified for assets depreciated under temporary full expensing rules.
December 9, 2021
- Reduced Pandemic leave disaster payment of $750 per week made available through to 30 June 2022.
August 5, 2021
- COVID-19 Disaster Payments are non-assessable non-exempt income in 2021 income year and later. Payments phasing out as vaccination rates increase.
July 1, 2021
- New Investment Engagement Service launched for businesses planning significant new investments in Australia.
- Tax Office small business independent review service made permanent for businesses with turnover < $10m, for income tax, GST, exercise, luxury car tax, wine equalisation tax and fuel tax credits. Requested before amended assessment issued.
- Small business income tax offset for individuals increased to provide a reduction of 16% for a tax payable up to $1,000.
- Self-managed superannuation funds can now have six members, increased from four members previously.
July 1, 2021
- Some COVID -19 state and territory business grants received by small and medium enterprises are non-assessable, non-exempt income for 2021 and 2022 income years.
- Certain state, territory and local government financial support for individuals and businesses suffering COVID-19 impacts made exempt where businesses have turnover less than $50 million and only in eligible programs.
March 31, 2021
- JobKeeper payments scheme ended.
October 5, 2020
- Boosting apprenticeship commencements subsidy (up to 50% of apprentice's wages) is assessable income.
June 4, 2020
- Homebuilder grant for new home or substantial renovation construction is not subject to income tax.
April 1, 2020
- COVID-19 cash flow boost payments are not subject to income tax
Do you have dealings with a related overseas entity? If so, you may have been caught up with the dreaded complexity of the Transfer Pricing (TP) rules. This is receiving increased attention by the Tax Office and by a Senate Committee currently examining the question of whether overseas companies are paying their fair share of tax on income earned in Australia.
These rules are not limited to the ‘Apples’ and ‘Googles’ of this world but, due to increasing trade globalisation, they increasingly apply to small and medium enterprises. The OECD term for entities which may be caught up in this legislation is MNE – Multinational Entities.
The rules relating to Transfer Pricing have been modernised and new Sub-Divisions 815-B, 815-C and 815-D are applicable from the 2013/14 year. These replaced the old Division 13 of the now mostly superseded Income Tax Assessment Act 1936. They also resolved controversies as to whether Double Tax Agreements contain provisions providing independent rules for Transfer Pricing adjustments.
On 17 December 2014, a Taxation Ruling, together with a number of Practice Statements were issued. These were:
- Taxation Ruling TR 2014/8 which provides details of TP documentation which should be kept in order to meet the requirements set out in Sub-Division 284-E of Schedule 1 to the Taxation Administration Act.
- PS-LA 2014/2 relating to the administration of TP penalties.
- PS-LA 2014/3 providing guidance to ATO staff on the application of options under simplifying TP record keeping for smaller entities.
- PS-LA 2014/4 relating to the administration of penalties.
More recently, on 26 February 2015, the Tax Office issued Practice Statement PS-LA 2015/3. This provides details of the Tax Office internal approval processes that are required when making the decisions about applying the Tax Office’s power to reconstruct the records of the MNE. This is known as the Tax Office’s reconstruction provisions. These are contained in Section 815-130 and they potentially allow the Tax Office to disregard actual transactions and substitute them with hypothetical arm’s length transactions.
Broadly, these provisions apply when it is considered that MNEs have entered into transactions between themselves that would not have been entered into by entities at arm’s length and that favour the MNE in a low tax country at the expense of the Australian Tax Office.
All multinational entities – those overseas with Australian operations or Australian entities with offshore operations – will be affected to some extent by these new rules. Existing arrangements and documentation should be reviewed before the relevant Income Tax Returns are lodged in order to ensure they are compliant.
Andrew and Tony Lovett
16 April 2015
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