This Draft, released on Wed 16.4.2014, concerns the ATO’s administration of transfer pricing penalties under s 284-145(2B) of Sch 1 to the TAA for income years commencing on or after 29 June 2013. It explains:
- when an entity will be liable for a transfer pricing penalty. Basically, an entity will be liable to a scheme penalty under s 284-145(2B) where Subdivs 815B or 815C of the ITAA 1997 apply to impose a liability to pay additional income tax or withholding tax;
- how the entity’s transfer pricing penalty is assessed; and
- how the Commissioner’s discretion in relation to remission should be exercised.
The administration of Subdiv 284-C scheme penalties involves 3 main steps:
- Step 1 – Determine whether the entity is liable for a penalty.
- Step 2 – Assess the amount of the penalty: (a) determine the scheme shortfall amount; (b) determine the base penalty amount (BPA); (c) increase or reduce the BPA, or both; (d) determine if remission is appropriate.
- Step 3 – Notify the entity of the liability to pay the penalty.
The Draft Practice Statement provides guidance on these 3 steps in the order they occur in the administrative process. It also discusses issues such as determining sole or dominant purpose, and reasonably arguable position.
COMMENTS are due by 30 May 2014. ATO contact – Michelle Osler – Tel: (03) 9275 4972; Fax: (03) 9275 5125; Email: michelle.osler@ato.gov.au.
[LTN 73, 16/4/14]
Extract from s284-145 of Sch 1 to the Taxation Administration Act 1953
(2B) You are also liable to an administrative penalty if:
(a) to give effect to Subdivision 815-B or 815-C of the Income Tax Assessment Act 1997 (also the adjustment provision ) in relation to a * scheme, the Commissioner:
(i) amends your assessment for an income year; or
(ii) serves you with one or more notices under subsection 128C(7) of the Income Tax Assessment Act 1936 in respect of income that is taken because of the application of the adjustment provision to have been derived in the income year; and
(b) as a result, you are liable to pay an additional amount of income tax or * withholding tax (as the case requires).
Note: Subdivisions 815-B and 815-C of the Income Tax Assessment Act 1997 apply the arm’s length principle (about transfer pricing) to entities and permanent establishments respectively.
[FJM Note: The normal Div 284 provisions apply a 25% shortfall penalty for lack of reasonable care or taking a position that is not reasonably arguable; a penalty of 50% of the under payment of tax for recklessness; and a 75% penalty for intentional disregard of the law. Take note however that the new s284-250 of Sch 1 to the TAA deems the taxpayer to have taken a position that was not reasonably arguable, if it was not documented as required by s284-255.]