Australia: Arm’s length, thin cap testing; transfer pricing landscape

Australia: Arm’s length, thin cap testing

A series of reports (June 2015) contains Board of Taxation recommendations including its review of the arm’s length debt test in the thin capitalisation rules.


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Currently, taxpayers can rely on the arm’s length debt test rules if their gearing levels for their Australian operations exceed the safe harbour debt levels. 

Five key recommendations of the Board of Taxation are:

  • Keep the arm’s length debt test
  • Don’t limit its scope
  • Change the law to factor in credit support
  • Minimise gateway compliance costs using the “tax risk integrity framework”
  • Enhanced ATO administrative guidance

Changing landscape of transfer pricing and tax controversy

This week, the KPMG member firm in Australia hosted a panel event to discuss the current heightened global focus on the tax performance of multinationals arising from the recent and proposed changes affecting multinationals, including:

  • Australia’s commitment to the BEPS agenda
  • Recent federal budget announcements and proposed legislation affecting multinationals including changes to Part IVA
  • Domestic changes to Australia’s transfer pricing provisions
  • Design and implementation of increased transparency legislation

The panel members provided key practical tips and insights on the following topics:

  • Managing risk and reputation
  • The landscape of transfer pricing and tax controversy has changed
  • Exposure Draft to the Tax Laws Amendment (Tax Integrity Multinational Anti-avoidance Law) Bill 2015
  • Division 815B of the new transfer pricing provisions.

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