The Australian Taxation Office (ATO) has launched a public consultation on a draft taxation determination (TD 2018/D6) concerning whether the debt and equity rules in Division 974 of the Income Tax Assessment Act 1997 can limit the operation of the transfer pricing rules in Subdivision 815-B of the Income Tax Assessment Act 1997.
Referring to the draft Tax Determination, Australia’s transfer pricing rules take precedence over Division 974 debt-equity characterization rules. As a result, the debt equity rules do not limit the operation of the transfer pricing rules which, in a related-party setting, substitute arm’s length conditions for actual conditions to figure an entity’s taxable income, loss, offsets, and withholding.
The ATO catered the following examples in its draft guidance to illustrate the effect of the transfer pricing rules on the debt equity rules.
ATO is seeking feedback on its draft by November 30. When the final determination is issued, it is proposed to apply to income years commencing on or after 29 June 2013, which corresponds with the commencement of Subdivision 815-B.
Source: Australian Tax Authority
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