Australia’s new transfer pricing laws overlap the thin cap rules: challenges for taxpayers

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By Jock McCormack

The overlap of Australia’s new transfer pricing laws with the thin capitalisation rules is causing challenges and likely duplication of analysis for taxpayers — particularly for the arm’s-length amount-of-debt test.

Australia legislated comprehensive new transfer pricing laws in 2012 and 2013. These laws were passed in two instalments: Subdivision 815-A, dealing with assessing powers under the equivalent of our double tax agreements (DTAs) and retrospective to 1 July 2004, and Subdivisions 815-B to D, which were broader (applying to both DTA and non-DTA circumstances) and of prospective effect from 1 July 2013. In addition, Subdivision 284–E of Schedule 1 of the Taxation Administration Act 1953 contains specific transfer pricing documentation requirements.

The new transfer pricing laws were largely introduced as a response to the commissioner of taxation’s loss in the full federal court decision in Commissioner of Taxation v SNF (Australia) Pty Ltd (2011). In that decision, the court rejected several of the commissioner’s fundamental technical arguments — not least, it rejected the legitimacy of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations as approved by the council of the OECD…

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