• Question 12

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Debt factoring and securitisation are finance arrangements entered into by an entity to obtain immediate funds in exchange for disposing of certain assets. There is a transfer pricing risk in respect of these arrangements in how the value of the assets being transferred between related parties is determined. We are seeking to clarify the extent of these finance arrangements between Australian taxpayers and international related parties and the principal arm's length pricing method used to set or review consideration in respect of these arrangements.

    Both finance transactions take on their ordinary meanings within the context of commercial practices.

    Broadly, debt factoring is a finance arrangement whereby a business sells its accounts receivable to a third party (factor) at a discount to obtain working capital. The factor then collects the receivables from the businesses' customers. Debt factoring agreements can either be recourse or non-recourse arrangements. With recourse debt factoring, the factor does not assume the risk of bad debts and may seek recourse from the business for any uncollectible debts. With non-recourse debt factoring, the sale of the receivables essentially transfers ownership of the receivables to the factor, such that the factor obtains all of the rights and risks associated with the receivables.

    Securitisation is a structured finance arrangement where an entity (the originator) sells a portfolio of assets to a special purpose vehicle. To acquire the assets from the originator, the special purpose vehicle issues tradable securities to fund the purchase. Investors purchase the securities, either through a private offering (targeting institutional investors) or on the open market. The originator will retain a beneficial interest in the performance of the securities and may also receive a service fee.

    If you enter into any debt factoring or securitisation arrangements with international related parties during the income year, answer yes to this question and complete the relevant fields.

    The dollar amounts or values asked for in this question are all based on your accounting records.

    Further Information

    For the list of pricing methodology codes, see Appendix 6.

    End of further information

    To complete this question, you need to:

    • identify all your debt factoring arrangements and securitisation arrangements you entered into during the income year with international related parties
    • in respect of any debt factoring arrangements
      • determine the book value of the assets sold to the factor for each of these arrangements
      • calculate the total book value of the assets for all these transactions
      • ascertain the amount of consideration received from the factor for the sale of receivables, in respect of each debt factoring arrangement
      • calculate the total amount of consideration received in respect of all these transactions
      • specify the principal arm's length pricing method used to set or review consideration in respect of these arrangements.
       
    • in respect of any securitisation arrangements
      • determine the book value of the assets transferred for each of these arrangements
      • calculate the total book value of the assets for all these transactions
      • ascertain the amount received from service fees and distributions from the special purpose vehicle arising from the transfer of assets in respect of each securitisation arrangement
      • calculate the total amount of service fees and distributions from the special purpose vehicles arising from all these transactions
      • specify the principal arm's length pricing method used to set or review the income derived from these arrangements.
       

    Example

    During the income year an Australian taxpayer provided and received the following services.

    Country

    Related party

    Arrangement type

    Book value of assets

    Consideration received

    Pricing methodology code

    Australia

    Yes

    Securitisation

    100,000,000

    3,100,000

    1

    Cayman Islands

    Yes

    Debt factoring

    9,000,000

    8,460,000

    12

    Jersey

    No

    Securitisation

    200,000,000

    6,250,000

    na

    Singapore

    Yes

    Securitisation

    100,000,000

    2,800,000

    1

    Spain

    Yes

    Debt factoring

    17,000,000

    16,065,000

    1

    United Kingdom

    No

    Securitisation

    150,000,000

    4,500,000

    na

    United States

    No

    Debt factoring

    15,000,000

    14,100,000

    na

    United States

    Yes

    Securitisation

    150,000,000

    4,600,000

    1

    The Australian taxpayer extracts the relevant data from the information above.

    Arrangement type

    Book value of assets

    Consideration received

    Pricing methodology code

    Debt factoring

    26,000,000

    24,525,000

    1

    Securitisation

    250,000,000

    7,400,000

    1

    Note: In completing this question the Australian taxpayer will disregard:

    • the securitisation arrangement undertaken with a related Australian based entity, as the arrangement is not a cross border transaction
    • the securitisation arrangements undertaken with entities located in Jersey and the United Kingdom, as the entities are not related to the taxpayer, and
    • the debt factoring arrangement undertaken with the entity located in the United States, as the entity is not related to the taxpayer.
     

    With this information the Australian taxpayer completes question 12 as follows.

    Example of question 12 completed

    Last modified: 09 Nov 2011QC 24292