This Draft Ruling, released Wed 16.4.2014, provides the Commissioner’s views about the application of s 815-130 of Subdiv 815-B of the ITAA 1997, which specifies the relevance of the actual commercial or financial relations to the identification of the arm’s length conditions for transfer pricing purposes.
Some points from the Draft Ruling include:
- Subdiv 815-B applies on a self-assessment basis and does not require the Commissioner to make a determination.
- Section 815-130 requires that the identification of the arm’s length conditions [which] must be based on certain commercial or financial relations.
- An entity gets a transfer pricing benefit for the purposes of Subdiv 815-B if the cross-border “actual conditions” that operate between the entity and another entity in connection with their commercial or financial relations differ from the arm’s length conditions and, had the arm’s length conditions operated instead, one or more of a number of conditions would apply.
DATE OF EFFECT: When the final Ruling is issued, it is proposed to apply to income years commencing on or after 29 June 2013 in relation to income tax. In relation to withholding tax, it is proposed to apply to income derived or taken to be derived in the income years specified in the Draft.
COMMENTS are due by 30 May 2014. ATO contact – Andrew Peake; Tel: (08) 8208 1839; Fax: (08) 8208 1898; Email: Andrew.Peake@ato.gov.au.
[FJM Note: See (below for) draft PS LA 3672 on how the penalties for an adjustment under this Subdivision will be imposed, and draft PS LA 3673 for the Commissioner’s approach in remitting those penalties.]
[LTN 73, 16/4/14]
Extract from Division 815 of the ITAA97
Subdivision 815-A–Treaty-equivalent cross-border transfer pricing rules
815.1 What this Subdivision is about
The cross-border transfer pricing rules in this Subdivision are equivalent to, but independent of, the transfer pricing rules in Australia’s double tax agreements.
…
Subdivision 815-B–Arm’s length principle for cross-border conditions between entities
815.101 What this Subdivision is about
This Subdivision applies if an entity would otherwise get a tax advantage in Australia from cross-border conditions that are inconsistent with the internationally accepted arm’s length principle.
The entity is treated for income tax and withholding tax purposes as if arm’s length conditions had operated.
…
Subdivision 815-C–Arm’s length principle for permanent establishments
815.201 What this Subdivision is about
This Subdivision applies the internationally accepted arm’s length principle in the context of permanent establishments (PEs).
…
Subdivision 815-D–Special rules for trusts and partnerships
815.301 What this Subdivision is about
This Subdivision provides special rules about the way Subdivisions 815-B and 815-C apply to trusts and partnerships.