Jane Rolfe and Bonnie Quinlan discuss the ATO's recent release of the International Dealings Schedule (IDS) stationery and instructions for 2018 tax years.
The ATO has included a new question on the IDS focused on cross-border R&D cost-plus arrangements, asking for separate disclosure of the relevant R&D costs incurred in providing the services and the cost plus margin received. This will highlight to the ATO the actual mark-up applied for R&D activities undertaken in Australia.
As we’ve seen previously where new questions are introduced to the IDS, the ATO has acknowledged that taxpayers’ accounting systems may not automatically collect and aggregate the information required and therefore a 'best efforts' aproach can be taken to estimate the relevant figures.
The 2018 IDS also includes a new transfer pricing question in Section C. Question 28b requests taxpayers to disclose if any ‘schedules’ within the ATO’s Practical Compliance Guideline 2017/1 (PCG 2017/1) apply to the taxpayer's offshore dealings and if so the value of any expenses or revenues. While this question will currently only be relevant in the context of Offshore Marketing Hub Arrangements, it is anticipated that further Schedules will be included in the future for other centralised operating models involving procurement, sales and distribution functions.
Off the back of the introduction of the Tax Laws Amendment (Tax Integrity and Other Measures No.2) Bill 2018, which addresses hybrid mismatch arrangements, taxpayers will need to disclose the existence of any arrangements under two new questions.
The IDS instructions have been updated to include the same foreign exchange (FX) disclosure concessions as the Australian Local File. This is the second year the IDS has required the disclosure of FX gains returned or losses deducted in relation to dealings with overseas related parties.
The disclosure requirements have been reduced for certain types of transactions, provided that certain criteria are met. However, additional analysis needs to be undertaken to determine whether the reduced disclosure applies. Where it doesn’t, more granular detail is required.
The 2018 IDS also includes a number of other updates in Section C – Interests in foreign entities, Section D – Thin capitalisation (in anticipation of the ATO’s thin cap TDs and PCGs), and Section E – Financial Services Entities.
Given the IDS is used for risk assessment purposes, taxpayers should be cognisant of understanding and determining the appropriate disclosures to the new IDS questions.