close
Share with your friends

ATO guidance on related party financing arrangements post Chevron

ATO guidance on related party financing arrangements

Angela Wood and Frank Putrino analyse the ATO's recently released guidance on related party financing arrangements.

1000

Also on home.kpmg

Child standing on books

The Australian Taxation Office (ATO) today released its draft Practical Compliance Guideline (PCG) 2017/D4: ATO compliance approach to taxation issues associated with cross-border related party financing arrangements and related transactions.

This draft Guideline will have effect from 1 July 2017 and will apply to existing and newly created financing arrangements.

Like its guidance in respect of Marketing Hubs, the ATO is continuing its colour spectrum approach (White, Green, Blue, Yellow, Amber & Red-zone) to assessing tax risk in relation to funding arrangements.

This approach allocates scores to various attributes of the funding arrangements based on spreads, leverage, interest cover ratios, security, subordination, tax attributes of the lender entity jurisdiction, currency of the loan vs operational functional currency of the borrower, hybrid mismatching and other ‘exotic’ features (payment-in-kind or interest deferral, early break fees, conversion to equity, etc).

One observation is the scores allocated to the green low-risk rating are largely features only ascribed to ‘AAA’-rated loans as opposed to similar ratios for investment grade funding.

In preparing PCG 2017/D4, it is understood that the ATO conducted benchmarking based on its portfolio of Australian taxpayers in order to arrive at the indicative draft scores ascribed in the draft PCG, a process that included discussions with a former member of a Big 4 bank lending committee, a Treasurer of an ASX Listed Company and a Boutique Capital Markets Debt Advisory Firm.

Comments on the draft PCG are due by 30 June 2017.

Further information

For further analysis of the decision of the Full Federal Court regarding Chevron read our detailed brief.

© 2020 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Liability limited by a scheme approved under Professional Standards Legislation.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal