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New draft risk guidance for outbound interest-free loans

New draft risk guidance for outbound interest-free loan

Tim Keeling and Frank Putrino discuss the ATO’s draft Schedule 3 contained in PCG 2017/4DC2 – interest-free loans between related parties.

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The Australian Taxation Office (ATO) has released its long-awaited draft risk-guidance relating to outbound interest-free loans made between an Australian taxpayer and its international related parties.

The ATO’s draft Schedule 3 contained in PCG 2017/4DC2 – interest-free loans between related parties provides updated guidance regarding key factors to consider when determining the transfer pricing risk of outbound interest-free debt lent by Australian taxpayers to international related parties.

Unsurprisingly, and consistent with current guidance contained in Schedule 1 of PCG 2017/4, the ATO considers there to be a high risk connected with outbound interest-free loans. The draft schedule does not set out relevant parameters and transfer pricing analysis to support that an outbound loan may be more akin to quasi-equity, but rather outlines circumstances that may lower the risk profile of the arrangement on the basis that the arrangement should be more closely compared to an equity contribution. In saying that however, it is clear that the draft Schedule builds on previous guidance provided by the ATO in paragraph 60 of TR 92/11, with relevant factors to consider and evidence to collate (discussed further below) appearing to be broadly aligned.

This article was first published to KPMG Tax Now.

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