The Australian Taxation Office (ATO) finalized a ruling that addresses the question: Can the transfer pricing rules re-characterise a financing arrangement as debt or equity?
According to the ATO ruling (TD 2019/10), the debt and equity rules in Division 974 of the Income Tax Assessment Act 1997 cannot limit the operation of the transfer pricing rules in Subdivision 815-B of the ITAA 1997.
Therefore, taxpayers having cross-border financing need to consider the ATO’s interpretive guidance in TD 2019/10.
TD 2019/10, providing that the operation of the transfer pricing rules in Subdivision 815-B cannot be restricted, is consistent with TD 2008/20—that ruling considered this issue in the context of the old Division 13 of the ITAA 36.
TD 2008/20 was withdrawn in October 2018 and accordingly does not apply for income years commencing on or after 29 June 2013 but continues to have effect for income years that commenced prior to 29 June 2013.
What does this mean? When there is a transfer pricing benefit, Section 815-110(1) has the effect that Division 974 cannot limit the operation of Subdivision 815-B, including the substitution of the arm's length conditions for the actual conditions under Section 815-115.
Read a July 2019 report prepared by the KPMG member firm in Australia
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