The effects of FX: updated ATO IDS | KPMG | AU

The effects of FX: updated ATO International Dealing Schedule

The effects of FX: updated ATO IDS

Tim Lynch and Kristen McIver discuss the ATO's release of the updated International Dealings Schedule for 2017.

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We have previously written in this publication about the difficulties multinational groups face when looking to rationalise / simplify their related party balances (particularly so where those balances have arisen through trade).

The Australian Taxation Office (ATO) has recently released the updated International Dealings Schedule (IDS) for 2017. One of the interesting changes is a new question (11g) requiring information to be disclosed on foreign exchange (FX) gains returned or losses deducted by transaction type and currency.

Another significant change is in Q13 to include specific disclosures on assignment of intellectual property (IP), shares/equity, and loans/debt. These questions probably look to more closely align the new IDS to the Australian Local File (even for those entities not part of the Country by Country (CbC) regime).

While the underlying transactions to which the questions relate give rise to numerous complex tax issues, the FX question will test taxpayers’ systems (as well as tax technical). With the ever growing importance of tax return disclosures (e.g. increased false and misleading penalties, justified trust etc), tax functions will need to undertake detailed analysis to accurately track intercompany balances to determine:

  • when FX adjustments arise
  • the relevant quantum and
  • whether there is anything which impacts the inclusion of each amount as assessable or deductible in the particular year (and to this end, the schedule requires separation of each gain and each loss per jurisdiction).

We have seen examples where the accounting systems of Australian head quartered multinationals do not necessarily track the FX positions in such a way that the tax outcomes are easily identifiable or capable of calculation. This has necessitated the tax and finance functions collectively re-determining the tax outcomes. Where the loans have been around for a number of years, or there have been changes to the accounting systems, then the exercise can be nigh on impossible (and the risks associated with ‘practical approaches’ are increasing). In its instructions, the ATO has noted that taxpayers may not have accounting systems which collect all the information required “for the first year” based on the outputs from accounting system alone (and will except a best estimate and recommends certain records are kept).

If there is a take away, our recommendation would be to try and understand the accounting and the various positions associated with each loan as early as possible. There may not be enough time after the lodgement date, (and significant global entities (SGEs) should know the importance of meeting that date).

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