The ATO on Wed 16.5.2012, issued Taxpayer Alert TA 2012/2 warning taxpayers of arrangements where a NZ based foreign discretionary trust (NZ foreign trust) is used to avoid taxation on Australian sourced income.
The arrangements involve the provision of services, at a mark up, to an Australian resident business, or the diversion of Australian sourced income. The ATO said it is investigating these arrangements and its view on them is set out in Taxation Ruling TR 2005/14.
Among other things, the ATO says the arrangements or certain steps within them may constitute a sham at general law. Further, it says the transfer pricing provisions in Div 13 Pt III of the ITAA 1936 and Pt IVA may apply to the arrangements.
[LTN 93, 16/5]