On 16 May 2017, the Australian Tax Office (ATO) released a draft Practical Compliance Guideline that sets out the compliance approach for cross-border related party financing arrangements as defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997), or a related transaction or contract, entered into with a cross-border related party.
The ATO uses the framework in this draft Guideline and the accompanying schedules to differentiate risk and tailor their engagement with taxpayers according to the features of related party financing arrangement, the profile of the parties to the related party financing arrangement and the choices and behaviors of the group. The tax risk associated with related party financing arrangement is assessed having regard to a combination of quantitative and qualitative indicators.
If any related party financing arrangement is rated as being low risk under this framework then taxpayers can expect the Commissioner will generally not apply compliance resources to review the taxation outcomes, in the relevant schedule, of any related party financing arrangement, other than to fact-check the appropriate risk rating. If any related party financing arrangement falls outside the low risk category, taxpayers can expect the Commissioner will monitor, test and/or verify the taxation outcomes of taxpayer’s related party financing arrangement.
This draft Guideline will have effect from 1 July 2017 and will apply to existing and newly created financing arrangements/ structures/ functions.
