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  • Tax Determination TD 2018/D6

    We have released Draft Taxation Determination TD 2018/D6 Income tax: can the debt and equity rules in Division 974 of the Income Tax Assessment Act 1997 limit the operation of the transfer pricing rules in Subdivision 815 B of the Income Tax Assessment Act 1997? 

    This draft tax determination addresses the interaction between two sets of provisions in tax law, namely:

    • Australia’s transfer pricing regime, which aims to combat multinational tax avoidance by ensuring the right amount of Australian tax is paid on international non-arm’s length dealings
    • the debt and equity rules, which classify financing arrangements as debt or equity for certain tax purposes.

    This draft determination confirms that the debt and equity rules cannot limit the operation of the transfer pricing rules. This is consistent with previous ATO guidance in relation to the former transfer pricing rules.

    This draft determination clarifies that where a tax benefit arises in a cross-border arrangement because parties did not deal with each other at arm’s length, the income tax law (including the debt and equity rules) applies on the basis of the arm’s length conditions that would have operated between independent parties. It means that non-arm’s length transactions involving debt or equity interests cannot be used to manipulate tax outcomes.

    See also:

    Last modified: 31 Oct 2018QC 57268