The Tax Laws Amendment (Cross-Border Profit Transfer Pricing) Bill (No 1) 2012 was introduced in the House of Reps on Thur 24.5.2012. It seeks to confirm that transfer pricing rules contained in Australia’s tax treaties and incorporated into domestic law provide assessment authority in treaty cases.
The Government said there are strong arguments for concluding that under the current income tax law, treaty transfer pricing rules apply as an alternative to Div 13 of the ITAA 1936. If this is the case, the Assistant Treasurer said these amendments “constitute a mere confirmation of these rules”.
The Bill seeks to:
- amend the ITAA 1997 to provide an express liability provision to ensure the transfer pricing articles contained in Australia’s tax treaties are able to be applied and provide assessment authority independent of Div 13;
- require that the transfer pricing rules in the Bill are interpreted as consistently as possible with the relevant OECD guidance;
- clarify the interaction between transfer pricing and the thin capitalisation rules.
PENALTIES – TRANSITIONAL RULE: A transitional rule is included in the amendments to ensure the penalty provisions of the income tax law apply as though the Bill was never enacted. The ATO’s ruling on how penalties generally apply in transfer pricing cases is to calculate the penalty based on the lesser of the amount determined under Div 13 or the treaty. This transitional rule is designed to ensure the practical operation of the penalty provisions is not disturbed.
DATE OF EFFECT: The changes will apply to income years commencing on or after 1 July 2004. The Assistant Treasurer said settled cases would not be re-opened as a result of the proposed amendments. Such cases would only be re-opened when the taxpayer breaches a term of the settlement, he said.
[FJM Note: The Government claimed this Bill would help get Google and others to pay more tax in Australia (in response to concerns raised by Malcolm Turnbull) but others have said that this problem will persist whilst we continue to tax based on the ‘source’ of the income.]
[LTN 99, 24/5]