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  • Section A: International related party dealings

    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

    Question 1a

    Country-by-Country (CbC) reporting

    Country-by-Country (CbC) reporting introduced under Subdivision 815-E of the ITAA 1997 requires Australian entities that were a significant global entity in the previous income year to provide three statements to the Commissioner:

    • a CbC report
    • a master file
    • a local file.

    A significant global entity is:

    • a global parent entity whose annual global income of A$1 billion or more, or
    • a member of a group of entities that are consolidated for accounting purposes as a single group and one of the other members of the group is a global entity whose annual global income is A$1 billion or more.

    An SGE can be an entity in a group that only has operations in Australia, including those that are privately owned.

    CbC reporting applies to income years starting on or after 1 January 2016.

    For more guidance on CbC reporting and significant global entities, refer to Country-by-Country reporting.

    If Country-by-Country reporting applies to you, answer Yes and go to question 1b.

    Question 1b

    If Country-by-Country reporting applies to you, and you have lodged Part A of your local file at the same time as your income tax return, answer Yes and go to question 18.

    For more information about the local file, see Country-by-Country reporting and Local file/master file 2017.

    Question 2

    If during the income year, the aggregate amount of your international related party dealings, including the value of any property or services transferred or the balance of any loans, exceeded $2 million, answer Yes at A item 2.

    This aggregate amount is based on your accounting records.

    Question 3

    To evaluate and monitor the compliance risks in respect of Australian taxpayers' international related party dealings, apart from those in specified countries, we need to identify the principal countries where those dealings are undertaken and identify the nature and significance of the activities undertaken in those countries.

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

    Only dealings conducted on your own behalf need to be taken into account in the answer to this question. Do not include dealings on behalf of your clients.

    Example

    A consumer goods retail entity enters into a purchase contract with its related foreign subsidiary on behalf of its customer. At this question the entity does not include the amounts directly payable or receivable under the purchase contract because it has not entered into the purchase contract with its foreign subsidiary on its own behalf.

    However, any service fee or amount receivable by the entity from their foreign subsidiary in connection with the transaction (for example, customer service fees) are an international related party dealing that the entity includes in its answer to this question.

    End of example

    The amounts reported at this question may be reported in the financial statements as revenue and gains or expenses and losses, depending on the accounting treatment of the relevant item.

    For example, for derivatives:

    • you may report revenue or expenses from net cash flows, or
    • you may report a gain or loss in fair value.

    Therefore for the purposes of this question, the terms:

    • expenditure and losses are interchangeable
    • revenue and gains are interchangeable.

    For more information about how to determine the amounts to be included in respect of derivatives, see the instructions for Question 9.

    To complete this question:

    • identify all your international related party dealings
    • disregard all your dealings with related parties located in specified countries
    • group your remaining dealings according to the country where the related party is located
    • total the dollar value of your dealings (the total amount of expenses and losses plus the total amount of revenue and gains, excluding principal and principal repayment amounts) for each country
    • determine the three countries that have the highest dollar value of related party dealings
    • in respect of the three countries with the highest dollar value of international related party dealings, group the dealings in each of the countries according to activity type
    • total the dollar value of your dealings (expenses and losses plus revenue and gains, excluding principal and principal repayment amounts) for each activity type
    • calculate the three activity types with the highest dollar value for each of the three countries.

    If you had international related party dealings during the income year, disregarding your dealings with parties located in any of the specified countries listed in Appendix 1, answer Yes at A item 3 and complete the following.

    At B, H and N, write the Appendix 2 codes for the three countries with the highest dollar value in respect of your dealings with international related parties located in countries apart from specified countries. Write these codes in descending order of total dollar value.

    At C, I and O, write the Appendix 4 codes for the three activity types with the highest dollar value of international related party dealings in relation to each of the countries you have identified. Write these codes in descending order of total dollar value.

    At D, J and P, write the total amount of expenditure and losses incurred (excluding principal and principal repayment amounts) in respect of each activity type you have identified in relation to the relevant country identified.

    At E, K and Q, write the total amount of revenue and gains earned (excluding principal and principal repayment amounts) in respect of each activity type you have identified in relation to the relevant country identified.

    At F, L and R, write the total of all other amounts of expenditure and losses for international related party dealings for the relevant country identified.

    At G, M and S, write the total of all other amounts of revenue and gains for international related party dealings for the relevant country identified.

    Example

    During the income year an Australian taxpayer undertook the following international dealings.
    During the income year an Australian taxpayer undertook the following international dealings.

    Country entity located

    Relation to taxpayer

    Activity

    Activity code

    Expenditure

    Revenue

    Total dollar value

    Canada

    100% subsidiary

    Management services

    1

    1,360,000

    4,000,000

    5,360,000

    Canada

    100% subsidiary

    Guarantees

    12

     

    870,000

    870,000

    Egypt

    100% subsidiary

    Advisory services

    2

     

    400,000

    400,000

    Egypt

    100% subsidiary

    Loan

    4

    3,666,000

    4,330,000

    7,996,000

    Egypt

    95% subsidiary

    Leasing

    14

    280,000

    300,000

    580,000

    Egypt

    100% subsidiary

    Technical services

    28

     

    295,000

    295,000

    France

    100% subsidiary

    Advisory services

    2

     

    500,000

    500,000

    France

    N/A

    Derivatives

    9

    4,580,000

    4,450,000

    9,030,000

    Japan

    100% subsidiary

    Loan

    4

    6,320,000

    4,100,000

    10,420,000

    Vietnam

    100% subsidiary

    Derivatives

    9

    3,850,000

    3,600,000

    7,450,000

    Vietnam

    100% subsidiary

    Other

    99

    2,450,000

    450,000

    2,900,000

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

    Country entity located

    Total expenditure amounts

    Total revenue amounts

    Total dollar value amounts

    Canada

    1,360,000

    4,870,000

    6,230,000

    Egypt

    3,946,000

    5,325,000

    9,271,000

    France

     

    500,000

    500,000

    Japan

    6,320,000

    4,100,000

    10,420,000

    Vietnam

    6,300,000

    4,050,000

    10,350,000

    The expenditure incurred and the revenue earned in relation to derivatives transactions in France were disregarded in calculating the total value of transactions in this country because they were undertaken with unrelated parties.

    The Australian taxpayer will:

    • record that the highest value of related party dealings are for Japan
    • complete the first row for the first country (Japan) recording the relevant information in respect of the loan dealings with Japan
    • leave blank the remaining fields relating to the first country indicating they did not have any other kinds of related party dealings for Japan
    • record that the second highest value of related party dealings are for Vietnam
    • complete the first two rows for the second country (Vietnam) recording the relevant information in respect of the two different kinds of their related party dealings for Vietnam – derivatives and other services
    • leave blank the remaining fields relating to the second country, indicating they did not have any other kinds of related party dealings for Vietnam
    • record that the third highest value of related party dealings are for Egypt
    • complete the three rows for the third country (Egypt) recording the relevant information in respect of the three different kinds of their related party dealings – loan, leasing and advisory services
    • complete S in the fourth row for All other amounts for Egypt, recording the revenue earned for technical services.

    With this information the Australian taxpayer completes question 3 as follows:

     This image is an example of completing question 3.

    End of example

    Question 4

    To evaluate any potential compliance risks in respect of Australian taxpayers' international related party dealings in specified countries, we need to understand the nature of these dealings. Therefore, we seek to identify the principal activities undertaken by Australian taxpayers and related parties in specified countries, where these activities are mainly undertaken and the extent or significance of these activities.

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

    Only dealings conducted on your own behalf need to be taken into account in your answer to this question. Do not include dealings on behalf of your clients.

    Example

    A financial services entity enters into a currency swap with its related foreign subsidiary on behalf of its customer. The entity does not include at this question the amounts directly payable or receivable under the swap because it has not entered into the swap with its foreign subsidiary on its own behalf. However any service fee or amount receivable by the entity from their foreign subsidiary in connection with the transaction (for example, an arrangement fee) would be an international related party dealing that the entity would include in its answer to this question.

    The amounts reported at this question may be reported in the financial statements as revenue and gains or expenses and losses, depending on the accounting treatment of the relevant item. For example, for derivatives:

    • you may report revenue or expenses from net cash flows, or
    • you may report a gain or loss in fair value.

    Therefore for the purposes of this question, the terms:

    • expenditure and losses are interchangeable
    • revenue and gains are interchangeable.
    End of example

    For more information about how to determine the amounts to be included in respect of derivatives, see the instructions for Question 9.

    To complete this question:

    • identify all your international related party dealings located in specified countries during the income year
    • group your dealings according to the country where the related party is located
    • total the dollar value of your dealings (expenses and losses plus revenue and gains, excluding principal and principal repayment amounts) for each country
    • determine the three countries that have the highest dollar value of related party dealings
    • then, in respect of the three countries with the highest dollar value of international related party dealings, group the dealings in each of the countries according to activity type
    • total the dollar value of your dealings (expenses and gains plus revenue and losses, excluding principal and principal repayment amounts) for each activity type
    • calculate the three activity types with the highest dollar value for each of the three countries.

    If you had related party dealings with entities in any of the specified countries listed in Appendix 1, during the income year, answer Yes at A item 4 and complete the required fields.

    At B, H and N, write the Appendix 1 codes for the three specified countries with the highest dollar values for your dealings with international related parties located in specified countries. Write these codes in descending order of total dollar value.

    At C, I and O, write the Appendix 4 codes for each of the three activity types with the highest dollar value for your international related party dealings for each of the three specified countries. Write these activity codes in descending order of total dollar value for each of the three activity types for each specified country.

    At D, J and P, write the total amount of expenditure and losses incurred (excluding principal and principal repayment amounts) for each of the activity types for the specified country for which you have written the activity code (at C, I and O).

    At E, K and Q, write the total amount of revenue and gains earned (excluding principal and principal repayment amounts) for each of the activity types for the specified country for which you have written the activity code (at C, I and O, respectively).

    At F, L and R, write the total of all other amounts of expenditure and losses for international related party dealings for the relevant specified country for which you have written the country code (at B, H and N, respectively).

    At G, M and S write the total of all other amounts of revenue and gains for international related party dealings for the relevant specified country for which you have written the country code (at B, H and N, respectively).

    Example

    During the income year an Australian taxpayer undertook the following dealings with entities located in specified countries.

    Activity

    Relation to taxpayer

    Country entity located

    Expenditure amounts

    Revenue amounts

    Total dollar values

    Derivatives

    100% subsidiary

    Andorra

    3,190,000

    4,220,000

    7,410,000

    Derivatives

    N/A

    Andorra

    1,300,000

    490,000

    1,790,000

    Derivatives

    100% subsidiary

    Belize

    2,145,000

    3,760,000

    5,905,000

    Derivatives

    100% subsidiary

    Niue

    600,000

    500,000

    1,100,000

    Securitisation

    100% subsidiary

    Niue

    6,000,000

    8,500,000

    14,500,000

    Securitisation

    100% subsidiary

    Panama

    900,000

    450,000

    1,350,000

    The expenditure incurred and revenue earned by the Australian taxpayer undertaking derivative transactions with unrelated parties in Andorra is disregarded in determining the total value of derivative transactions.

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

    Activity

    Activity code

    Total expenditure amount

    Total revenue amount

    Total dollar value

    Derivatives

    9

    5,935,000

    8,480,000

    14,415,000

    Securitisation

    25

    6,900,000

    8,950,000

    15,850,000

    The main activity types undertaken by the Australian taxpayer and related parties located in specified countries are securitisation and derivatives.

    With this information the Australian taxpayer completes question 4 as follows:

    This image is an example of completing Question 4.

    End of example

    Question 5

    The intent of this question is to identify whether the taxpayer has any international related party dealings involving tangible property of a revenue nature, including trading stock and raw materials, and if so, to quantify those dealings and to ascertain the extent to which the taxpayer has transfer pricing documentation to support those dealings.

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

    The definition of trading stock in Division 70-10 of the Income Tax Assessment Act 1997 (ITAA 1997) should be used to determine what trading stock is for the purpose of this question.

    Internal trading stock transfers to or from your own branch operations should instead be included at question 18 of the schedule.

    If you had related party dealings involving tangible property of a revenue nature, including trading stock and raw materials, answer Yes at A item 5 and complete the required fields.

    At C, write the amount of your gross purchases or expenditure for tangible property of a revenue nature, including trading stock and raw materials obtained from international related party dealings.

    At D, write the amount of your gross sales or revenue from tangible property of a revenue nature, including trading stock and raw materials provided to international related parties.

    These amounts will typically be included in trading account items, and will include partially finished goods.

    At E, write the Appendix 5 code for the principal arm's length pricing method used to value intangible property of a revenue nature, including stock in trade and raw materials transactions.

    At F, write the Appendix 9 code for the percentage of these dealings involving tangible property of a revenue nature, including trading stock and raw materials, for which you have documentation.

    Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this question. If you applied one of the simplified record-keeping options in the Practical Compliance Guideline PCG 2017/2 Simplified transfer pricing record keeping options for these dealings involving tangible property of a revenue nature, including trading stock and raw materials, write code 7 at F.

    Question 6

    This question seeks information to assess transfer pricing risks arising from royalty and licence fee arrangements between Australian taxpayers and international related parties. We seek to determine the level of these transactions between Australian taxpayers and their international related parties, identify the pricing methodology used in relation to these arrangements and to ascertain the extent to which the taxpayer has transfer pricing documentation to support those dealings.

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

    For the purpose of this question royalty or royalties is as defined in subsection 6(1) of the ITAA 1936 and in any applicable double tax agreement in the International Tax Agreements Act 1953 (Schedule 1 - Taipei Agreement) or the Australian Treaty Series. Where there is a conflict between the definition of royalty in subsection 6(1) of the ITAA 1936 and the definition in an applicable double tax agreement, use the definition in the double tax agreement (see subsection 4(2) of the International Tax Agreements Act 1953).

    The term licence fee has its ordinary meaning.

    If you had international related party dealings involving royalties or licence fees during the income year, answer Yes at A item 6 and complete the required fields.

    Item 6a is completed as follows:

    At C, write the total amount of royalties payable by you to international related parties claimed as deductions for the income year.

    At D, write the total amount of royalties you derived from international related parties included in your assessable income for the income year.

    At E, write the Appendix 5 code for principal arm's length pricing method used to set or review consideration for the royalties payable by or derived by you.

    At F, write the Appendix 9 code for the percentage of your international related party dealings involving royalties for which you have documentation.

    Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this question.

    Item 6b is completed as follows:

    At C, write the total amount of licence fees payable by you to international related parties claimed as deductions for the income year.

    At D, write the total amount of licence fees you derived from international related parties included in your assessable income for the income year.

    At E, write the Appendix 5 code for principal arm's length pricing method used to set or review consideration for the licence fees payable by or derived by you.

    At F, write the Appendix 9 code for the percentage of your international related party dealings involving licence fees for which you have documentation.

    Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this question.

    Question 7

    This question seeks information to assess transfer pricing risks arising from rent or leasing arrangements between Australian taxpayers and international related parties. We seek to determine the level of these transactions between Australian taxpayers and their international related parties and identify the pricing methodology used in relation to these arrangements.

    Rent and lease or leasing have their ordinary meaning and will include hiring of chattels.

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

    If you had international related party dealings involving rent or leasing during the income year, answer Yes at A item 7 and complete the required fields.

    At C, write the total amount of rent and leasing charges or fees incurred by you in your dealings with international related parties.

    At D, write the total amount of rent and leasing income you earned or derived from your dealings with international related parties.

    At E, write the Appendix 5 code for principal arm's length pricing method used to set or review consideration for the rent and leasing arrangements with international related parties.

    At F, write the Appendix 9 code for the percentage of your international related party dealings involving rent or leasing for which you have documentation.

    Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this question. If you applied one of the simplified record-keeping options in PCG 2017/2 Simplified transfer pricing record keeping options for these dealings, write code 7 at F.

    Question 8

    Transfer pricing risks arise in respect of service arrangements between Australian taxpayers and international related parties. To quantify these risks we need to identify the nature and significance of these service arrangements and the pricing methodology used, and ascertain the extent to which the taxpayer has transfer pricing documentation to support those dealings.

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

    You must report the total amount of expenditure you incurred, and total amount of revenue you earned or derived, for each category of services with international related parties at items 8a to 8k. For example, report the total amount of expenditure incurred and the revenue earned or derived in respect of each service category with your international related parties, not the mark-up on costs of services you received or provided in service arrangements with your international related parties.

    In completing this question, exclude the following amounts, returned:

    • at question 6 relating to royalties or licence fees
    • at question 9 relating to derivative transactions
    • at question 11 relating to other dealings of a financial nature including any borrowing or lending transactions.

    For the purpose of this question, a service arrangement is one that is based on the performance of work by one party for the benefit of another party (see Employers Mutual Indemnity Association Ltd v. Federal Commissioner of Taxation [1943] HCA 36; (1943) 68 CLR 165 per Latham CJ at 174).

    The arrangement may be formal or informal. You may be the customer or the provider of the service.

    Where the services are bundled in one charge and your accounting records do not separate them into the distinct service categories in this question, you must reasonably allocate the charge to the relevant service categories in items 8a to 8j. If you are unable to reasonably allocate all of the charge to the service categories in those items, show the unallocated amount of the charge at item 8k Other services and write a clear description of the nature of the relevant services received. These services are divided into the following categories:

    Treasury related services

    Activities involved in the managing of the taxpayer's financial operations, including:

    • transaction, investment and information services relating to securities, financial assets, financial liabilities, portfolios or other assets held by yourself or an international related party
    • the generation of internal and external funding
    • risk management systems development and review
    • the management of currencies and cash flows
    • complex strategies, policies and procedures relating to the taxpayer's finance.

    Management and administration services

    Management and administration services are activities that:

    • involve or relate to the control, facilitation, and monitoring of the taxpayer's human resources (staffing) and financial resources (assets)
    • relate to administering the day to day business operations of the taxpayer, including
      • back office services
      • administrative services associated with employee share-based plans and recharge amounts
      • accounting services.
       

    Administration services exclude activities relating to financing, marketing or production.

    Insurance services

    Insurance services are activities associated with the management of insurance contracts (predominantly undertaken through intermediaries). Effectively, the expenditure and revenue will represent intermediaries' commissions for providing an insurance management type service (for example, placement of the insurance portfolio to a third party or providing back office functions). The premiums or other expenditure incurred or revenue earned or derived in relation to insurance contracts with international related parties during the income year should be shown at question 11e.

    Reinsurance services

    Reinsurance services are activities associated with the management of reinsurance contracts (predominantly undertaken through intermediaries). Effectively, the expenditure and revenue will represent intermediaries' commissions for providing an insurance management type service in relation to reinsurance contracts (for example, placement of the insurance portfolio to a third party or providing back office functions). The premiums or other the expenditure incurred or revenue earned or derived in relation to reinsurance contracts with international related parties during the income year should be shown at question 11f.

    Research and development services

    Research and development services are activities associated with the undertaking of research and development services on behalf of a contracting party on a systematic basis in order to develop intellectual property, where the entity providing the research and development services does not take title to any resultant intellectual property created in the provision of the service.

    Sales and marketing services

    Sales and marketing services includes amounts for services in respect of sales such as amounts, including commissions, derived or paid for services to facilitate the sale of goods or services.

    Marketing services includes activities that involve acquiring new customers or business and maintaining a relationship with them, including:

    • advertising
    • brand promotion
    • sales strategies
    • customer support services.

    Software and information technology services

    Software and information technology services are activities involved in the support and maintenance of software and technology used by the taxpayer. Activities relating to the ownership of the software and technology are excluded, such as leasing and rental fees.

    Technical services

    Technical services are activities associated with engineering, architecture, design, project management and mining exploration.

    Logistics services

    Logistics services are activities that relate to transport, freight, storage, scheduling, sourcing and procurement.

    Asset management services

    Asset management services are activities associated with the management of assets, funds or investments undertaken on a discretionary basis in accordance with an investment strategy, with the provider of the services responsible for both of the following:

    • acquiring, monitoring, managing and disposing of traditional and non-traditional financial products held by the taxpayer or a related party
    • assessing, monitoring and managing the market risks associated with holding the financial products.

    Other services

    Other services are all other services not covered by the above categories. Item 8k Other services should only be used for reporting of amounts which are not covered by the categories of service at 8a to 8j.

    To complete this question, you must:

    • identify all service arrangements between you and international related parties
    • group the service arrangements into one of the eleven service categories (including the service arrangement category referred to as Other)
    • calculate the total amount of expenditure incurred and the revenue earned or derived in respect of each service category
    • identify the principal arm's length pricing method used to set or review consideration in respect of each service arrangement undertaken with international related parties
    • identify the percentage of dealings for which you have documentation
    • provide a description of the nature of the service arrangements with international related parties recorded under Other services (if applicable).

    If you had international related party dealings regarding service arrangements during the income year, answer Yes at A item 8 and complete the required fields.

    For your international dealings involving each type of services covered by items 8a to 8j, complete each of those items as follows:

    • At C, write the total amount of expenditure you incurred for the service type.
    • At D, write the total amount of revenue you earned or derived for the service type.
    • At E, write the Appendix 5 code for the principal arm's length pricing method used to set or review consideration for the service type.
    • At F, write the Appendix 9 code for the percentage of the international dealings for the service type for which you have documentation.

      Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this question. If you applied one of the simplified record-keeping options in PCG 2017/2 Simplified transfer pricing record keeping options for your service arrangements shown at items 8a, 8b, 8h or 8i, write code 7 at F at the corresponding item.

    For your international dealings involving any other kind of services, complete 8k as follows:

    • At C, write the total amount of expenditure you incurred for the other kinds of services.
    • At D, write the total amount of revenue you earned or derived for the other kinds of services.
    • At E, write the Appendix 5 code for the principal arm's length pricing method used to set or review consideration for the other kinds of services.
    • At F, write the Appendix 9 code for the percentage of the international dealings for the other kinds of services for which you have documentation.

      Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this question. If you applied one of the simplified record-keeping options in PCG 2017/2 Simplified transfer pricing record keeping options for your service arrangements shown at item 8k, write code 7 at F at item 8k.
    • At H, write a description of the other kinds of services. Limit the description to 200 characters.

    Example

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

    Country

    Related party

    Description of service arrangement

    Expenditure

    Revenue

    Pricing methodology code

    Australia

    Yes

    Payroll

    160,000

     

    3

    Belize

    Yes

    Admin services - recharge amounts

    150,000

     

    10

    India

    Yes

    Hardware maintenance

    200,000

     

    12

    India

    Yes

    Foreign exchange advice

     

    210,000

    1

    Indonesia

    Yes

    Risk management

     

    190,000

    1

    New Zealand

    Yes

    Risk management

     

    170,000

    1

    Singapore

    Yes

    Accounting

    120,000

     

    10

    Singapore

    No

    Marketing

    320,000

     

    n/a

    Singapore

    Yes

    Management

    290,000

     

    1

    United Kingdom

    Yes

    Provide training

    100,000

     

    1

    United States

    Yes

    Software support

     

    350,000

    3

    United States

    Yes

    Back office

     

    430,000

    3

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

    Treasury related services
    Treasury related services

    Service arrangement type

    Country

    Expenditure

    Revenue

    Pricing methodology code

    Percentage of documentation

     

    India

     

    210,000

    1

    6

     

    Indonesia

     

    190,000

    1

    6

     

    New Zealand

     

    170,000

    1

    6

    Total

     

     

    570,000

    1

    6

    Management services
    Management services

    Service arrangement type

    Country

    Expenditure

    Revenue

    Pricing methodology code

    Percentage of documentation

     

    Singapore

    290,000

     

    1

    5

    Total

     

    290,000

     

    1

    5

    Software & information technology
    Software & information technology

    Service arrangement type

    Country

    Expenditure

    Revenue

    Pricing methodology code

    Percentage of documentation

     

    India

    200,000

     

    12

    6

     

    United States

     

    350,000

    3

    6

    Total

     

    200,000

    350,000

    3

    6

    Administrative services
    Administrative services

    Service arrangement type

    Country

    Expenditure

    Revenue

    Pricing methodology code

    Percentage of documentation

     

    Belize

    150,000

     

    10

    5

     

    Singapore

    120,000

     

    10

    5

     

    United States

     

    430,000

    3

    5

    Total

     

    270,000

    430,000

    3

    5

    Other financial services
    Other financial services

    Service arrangement type

    Country

    Expenditure

    Revenue

    Pricing methodology code

    Percentage of documentation

    Vocational training

    United Kingdom

    100,000

     

    1

    4

    Total

     

    100,000

     

    1

    4

    In completing this question the Australian taxpayer will disregard:

    • the expenses incurred in respect of the marketing services provided by the entity located in Singapore, as the entity is not related to the taxpayer
    • the payroll service undertaken with the related Australian based entity, as the arrangement is not a cross border transaction.

    With this information the Australian taxpayer completes question 8 as follows:

    This image is an example of completing question 8.

    End of example

    Question 9

    This question collects information about the transfer pricing risks associated with Australian taxpayers' derivative transactions with international related parties. Here you show the total amount for these transactions and an indication of the principal derivative transaction types undertaken.

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

    Derivative takes on its ordinary meaning within the context of commercial and accounting practices.

    Broadly, a derivative instrument is a contractual right that derives its value from the value of something else, such as a debt security, equity, commodity or specific index. The most common derivative instruments are forwards, options, swaps and credit derivatives. Unlike traditional debt and equity securities, these instruments generally do not involve a return on an initial investment.

    The disposal or the acquisition of a derivative would constitute a derivative transaction.

    All your derivative transactions with international related parties should be shown at this question, including derivatives entered into for trading, hedging, speculation or arbitrage purposes.

    You should not include exchange traded options or exchange traded futures in this question. However, where exchange traded options or futures are not separated from other options or futures in your records they may be included.

    Where you use mark-to-market or fair value accounting for financial accounting purposes you may use this method for determining amounts included for derivatives at this question. This will include the net change in fair value of the derivative recorded as a gain or loss in your financial statements for the relevant income year.

    For many derivatives (for example, interest rate swaps), the parties to the contract will make payments at regular intervals under the contract. These gross payments should be recorded at this question as captured for accounting purposes. If under the derivative instrument, net cash flows are exchanged at certain specified times during the term of the contract, and only net cash flows are captured for accounting purposes, then the amounts should be included at this question on a net cash flow basis. Principal or notional principal amounts exchanged under the derivatives should not be included.

    The net settlement amounts exchanged to close out a forward rate agreement or cross currency swap agreement would be included at this question, but not a principal amount delivered under the agreement.

    The amounts payable or derived as option premiums would also be included at this question.

    The amounts reported at this question may be reported in financial statements as revenue and gains or expenses and losses, depending on the accounting treatment of your derivatives (and this includes amounts relating to derivatives entered into that are part of a hedging purpose).

    Therefore for the purposes of this question, the terms:

    • expenditure and losses are interchangeable
    • revenue and gains are interchangeable.

    To evaluate the information provided at items 9a or 9b we need to know whether the Australian taxpayer is conducting derivative trading globally through a trading structure such that profits from the activities are shared with international related parties. Where this is the case there is a transfer pricing risk due to the need to determine the appropriate allocation of profits between the relevant parties. This is the focus of item 9c.

    Global trading of financial instruments, including derivatives, is defined by reference to the fact that some part of the business is conducted in more than one tax jurisdiction. This concept of trading derivatives globally is based on the OECD's definition of global trading of financial instruments.

    For information about what might constitute global trading, see paragraphs 9 to 11 of the introduction of OECD Document - The Taxation of Global Trading of Financial Instruments (1998). You can buy a copy at oecdbookshop.orgExternal Link

    To complete this question:

    • identify the derivative transactions undertaken with international related parties
    • total the expenditure incurred and the revenue earned in respect of these derivative transactions with international related parties
    • determine the principal arm's length pricing method used to set or review consideration in respect of these derivative transactions.

    If you had derivative transactions with international related parties during the income year, answer Yes at A item 9 and complete the following:

    • At C of item 9a, write the total amount of expenditure incurred in respect of your derivatives with international related parties.
    • At D of item 9a, write the total amount of revenue earned or derived in respect of your derivatives with international related parties.
    • At E of item 9a, write the Appendix 5 code for the principal arm's length pricing method used to set or review consideration in respect of your derivatives with international related parties.
    • At F of item 9a, write the Appendix 9 code for the percentage of your international related party dealings involving derivatives with international related parties for which you have documentation.

      Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this question.
    • At G1, G2 and G3 of item 9b, write the Appendix 6 code for the three types of derivative transactions you entered into with international related parties that have the highest dollar value.
    • Answer Yes or No at H of item 9c depending on whether you engaged in the trading of derivatives globally through a trading structure (irrespective of the type of trading model used) such that you share global profits from these activities with international related parties.

    Example

    During the income year an Australian taxpayer undertook the following derivative transactions, for which relevant documentation is held for 90% of the transactions.

    Derivative transactions

    Derivative transaction type

    Related to taxpayer

    Dominant pricing methodology

    Expenditure

    Revenue

    Fixed interest rate swap (not cross currency)

    Yes

    CUP (see note)

    5,395,000

    5,465,000

    Currency forward

    Yes

    CUP

    7,320,000

    7,150,000

    Currency swap

    Yes

    CUP

    6,453,000

    6,780,000

    Cross currency interest rate swap

    Yes

    CUP

    4,750,000

    5,100,000

    Commodity forward

    No

    CUP

    3,850,000

    3,200,000

    Credit default swap

    No

    CUP

    1,345,000

    1,800,000

    Credit default swap

    Yes

    CUP

    3,660,000

    4,250,000

    Note: Comparable uncontrolled price method (CUP).

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

    Derivative transaction type

    Related to taxpayer

    Expenditure

    Revenue

    Total

    Fixed for floating interest rate swap (not cross currency)

    Yes

    5,395,000

    5,465,000

    10,860,000

    Currency derivative (not cross currency interest rate swap)

    Yes

    13,773,000

    13,930,000

    27,703,000

    Cross currency interest rate swap

    Yes

    4,750,000

    5,100,000

    9,850,000

    Credit default swap

    Yes

    3,660,000

    4,250,000

    7,910,000

    Total

     

    27,578,000

    28,745,000

    56,323,000

    In completing this question the Australian taxpayer will disregard the derivative transactions with unrelated parties.

    With this information the Australian taxpayer completes question 9 as follows:

    Example of question 9 completed as per previous information

    End of example

    Question 10

    Debt factoring and securitisation are finance arrangements entered into by an entity to obtain or provide immediate funds in exchange for disposing of certain financial assets. There is a transfer pricing risk in respect of these arrangements in how the value of the assets being transferred between international related parties is determined.

    We are seeking to clarify the extent of these finance arrangements between Australian taxpayers and international related parties, the principal arm's length pricing method used to set or review consideration in respect of these arrangements and to ascertain the extent to which the taxpayer has transfer pricing documentation to support those dealings.

    Debt factoring and securitisation have 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 business's 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 financial 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 (for example, by 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.

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

    To complete this question, you must:

    • identify all the 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 receivables sold or assigned to the factor for each of these arrangements
      • calculate the total book value of the receivables for all these arrangements
      • ascertain the consideration or payment amount received from the factor for the 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
      • specify the code for the percentage of dealings for which you have documentation. Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this question.
       
    • 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 arrangements
      • ascertain the amount received from service fees, sales amounts 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, sales amounts and distributions from the special purpose vehicles arising from all these arrangements
      • specify the principal arm's length pricing method used to set or review the income derived from these arrangements
      • specify the code for the percentage of dealings for which you have documentation. Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this question.
       

    If you enter into any debt factoring or securitisation arrangements with international related parties during the income year, answer Yes at A item 10 and complete the following.

    Item 10a is completed as follows in relation to your international related party dealings involving debt factoring arrangements:

    • At C, write the total amount of the book value of the debt factoring arrangements.
    • At D, write the consideration received for entering into the debt factoring arrangements.
    • At E, write the Appendix 5 code for the principal arm's length pricing method used in the debt factoring arrangements.
    • At F, write the Appendix 9 code for the percentage of your international related party dealings involving debt factoring arrangements for which you have documentation.

      Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this question.

    Item 10b is completed as follows in relation to your international related party dealings involving securitisation arrangements:

    • At C, write the total amount of the book value of the securitisation arrangements.
    • At D, write the consideration received for entering into the securitisation arrangements.
    • At E, write the Appendix 5 code for the principal arm's length pricing method used in the securitisation arrangements.
    • At F, write the Appendix 9 code for the percentage of your international related party dealings involving securitisation arrangements for which you have documentation.

      Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this question.

    Example

    During the income year an Australian taxpayer had debt factoring or securitisation arrangements with the following book values and amounts of consideration received.
    During the income year an Australian taxpayer had debt factoring or securitisation arrangements with the following book values and amounts of consideration received.

    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

    N/A

    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

    N/A

    United States

    No

    Debt factoring

    15,000,000

    14,100,000

    N/A

    United States

    Yes

    Securitisation

    150,000,000

    4,600,000

    1

    The Australian taxpayer extracts the relevant data from the information above. The taxpayer has documentation for 100% of the transactions.
    The Australian taxpayer extracts the relevant data from the information above. The taxpayer has documentation for 100% of the transactions.

    Arrangement type

    Book value of assets

    Consideration received

    Pricing methodology code

    Percentage of documentation

    Debt factoring

    26,000,000

    24,525,000

    1

    6

    Securitisation

    250,000,000

    7,400,000

    1

    6

    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
    • securitisation arrangements undertaken with entities located in Jersey and the United Kingdom, as the entities are not related to the taxpayer
    • 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 10 as follows:

    This image is an example showing you how to complete Question 10.

    End of example

    Question 11

    This question collects information about your dealings of a financial nature with international related parties other than those covered in questions 9 and 10. Your dealings of a financial nature include:

    • borrowings or loans
    • foreign currency trade related financial liabilities or receivables resulting in assessable foreign exchange gains or deductible foreign exchange losses during the income year, for example
      • foreign currency intercompany liabilities for amounts payable by you for purchase of commodities from international related parties which are satisfied during the income year
      • foreign currency intercompany receivables for amounts payable to you for provision of services to international related parties which are satisfied during the income year.
       

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

    Loans and interest

    Loan arrangement has its ordinary meaning within the context of commercial and accounting practices. In general terms, a loan arrangement is defined as a contract whereby the lender pays a sum of money in consideration of a promise by the borrower to repay the money at some time in the future (and this promise may or may not include the promise to repay interest on the money borrowed). Any amounts that are not a loan but which would be considered to be a debt interest for the purposes of Division 974 of the ITAA 1997 should be included here. This will include redeemable preference shares or promissory notes which satisfy the conditions for a debt interest under subsection 974-20 of the ITAA 1997.

    Financial arrangements that are economically in substance a loan arrangement would be regarded as a loan for the purposes of this question, for example, securities arrangements where the collateral is cash, sale and buyback arrangements to be settled in cash, or repurchase agreements (repos) to be settled in cash.

    Whether a financial arrangement economically constitutes a loan arrangement is a matter to be decided based on the facts and circumstances of each arrangement.

    For arrangements that are economically in substance loans, for the purposes of completing this question, treat:

    • the cash collateral or cash settlement amount as the loan amount
    • any fees paid or received in respect of those arrangements as interest
    • any gain made or loss incurred in respect of those arrangements as interest.

    For more information about the concept of what constitutes a loan, see:

    • TR 92/11 Income tax: application of the Division 13 transfer pricing provisions to loan arrangements and credit balances
    • TR 2002/16 Income tax: the taxation consequences for taxpayers issuing certain stapled securities.

    We recommend that you seek appropriate advice or guidance in light of the particular facts and circumstances of your case.

    We expect interest to be the principal expense incurred and revenue earned in respect of your financial arrangements in the nature of loans, and this would be included at item 11c. However, any other expenses and losses or revenue and gains associated with these arrangements, such as borrowing costs should be included at item 11f.

    Do not show at this question principal and principal repayment amounts.

    To complete this part of the question:

    • identify all your international related party dealings of a financial nature in the nature of loans
    • divide those loan arrangements into
      • interest bearing loans
      • interest free loans
       
    • calculate the average balance of each of those loan arrangements by
      • adding up the loan balance amount at the start of the year and the loan balance amounts at the end of each quarter
      • dividing the result by five
       
    • in respect of interest bearing loans, determine the amount of interest expenditure or interest revenue in respect of these loans.

    If you had any financial arrangements in the nature of loans with international related parties during the income year, answer Yes at A item 11 and complete the following.

    If an amount to be written at this item is not relevant for any of your international related party financial arrangements in the nature of loans, leave the label blank.

    For item 11a:

    • At I, write the average balance of interest bearing loans in relation to amounts borrowed from international related parties.
    • At K, write the average balance of interest free loans in relation to amounts borrowed from international related parties.

    For item 11b:

    • At I, write the average balance of interest bearing loans in relation to amounts loaned to international related parties.
    • At K, write the average balance of interest free loans in relation to amounts loaned to international related parties.

    For item 11c:

    • At C, write the total interest expenditure in respect of the interest bearing loans borrowed from international related parties.
    • At D, write the total interest revenue in respect of the interest bearing loans to international related parties.
    • At F, write the Appendix 9 code for the percentage of the international related party interest you have shown for which you have documentation. If you applied one of the simplified record-keeping options in PCG 2017/2 Simplified transfer pricing record keeping options for the interest you have shown, write code 7 at F.

    Example

    During the income year, the Australian taxpayer (a 30 June balancer) had a borrowing from international related parties and loans to international related parties. The Australian taxpayer has divided these borrowings and loans into interest-bearing and non-interest-bearing borrowings and loans and calculated the average balance of each of the borrowing and loan arrangements. (They did this by adding up the borrowing and loan balance amounts at the start of the year and at the end of each quarter and dividing the result by five.)

    For example, the taxpayer has a borrowing from a related United States entity. The borrowing is interest bearing and the balances of the borrowing are as follows:

    The table below shows the borrowing balances taken out by the taxpayer from a related United States entity throughout the financial year 2016-17

    Date

    Borrowing balances

    01/07/16

    $3,000,000

    30/09/16

    $7,000,000

    31/12/16

    $5,000,000

    31/03/17

    $3,000,000

    30/06/17

    $3,000,000

    $21,000,000 divided by 5 = $4,200,000

    The table below shows all the average loan balances for the taxpayer’s borrowings and loans for its financial arrangements in the nature of loans with international related parties.

    Country

    Related entity

    Loan type

    Interest bearing loans - Average loan balance

    Interest bearing loans - Interest

    Interest free loans - Average loan balance

    United States

    Entity

    Borrowed

    4,200,000

    31,500

     

    Singapore

    Entity

    Loaned

     

     

    1,800,000

    Singapore

    Entity

    Loaned

    2,200,000

    16,500

    1,800,000

    United States

    Entity

    Borrowed

    3,200,000

    24,000

    4,000,000

    Japan

    Entity

    Loaned

     

     

    2,900,000

    Hong Kong

    Entity

    Borrowed

    3,300,000

    24,750

     

    United States

    Entity

    Borrowed

    2,800,000

    21,000

    3,500,000

    Vietnam

    Entity

    Loaned

    1,650,000

    12,375

     

    Hong Kong

    Entity

    Borrowed

    2,800,000

    21,000

     

    Singapore

    Entity

    Borrowed

     

     

    1,900,000

    United States

    Entity

    Borrowed

    2,800,000

    21,000

     

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

    Related entity

    Loan type

    Interest bearing loans - Total average loan balances

    Interest bearing loans - Total interest

    Interest free loans - Total average loan balances

    Entity

    Borrowed

    4,200,000

    31,500

     

    Entity

    Borrowed

    3,200,000

    24,000

    4,000,000

    Entity

    Borrowed

    6,100,000

    45,750

    3,500,000

    Entity

    Borrowed

    5,600,000

    42,000

    1,900,000

    Total (average balances)

     

    19,100,000

     

    9,400,000

    Total interest

     

     

    143,250

     

    Entity

    Loaned

     

     

    1,800,000

    Entity

    Loaned

    2,200,000

    16,500

    1,800,000

    Entity

    Loaned

     

     

    2,900,000

    Entity

    Loaned

    1,650,000

    12,375

     

    Total (average balances)

     

    3,850,000

     

    6,500,000

    Total interest

     

     

    28,875

     

    With this information the Australian taxpayer completes question 11 as follows:

    This image is an example showing you how to complete Question 11.

    End of example

    Guarantees

    The expenditure and revenue for guarantees include fees associated with a contract or arrangement under which a party agrees to perform an obligation or discharge a liability of another entity should that entity fail to do so.

    Insurance and reinsurance

    This part of question 11 asks you to provide details of your expenses incurred and revenue earned or derived in relation to your insurance and reinsurance contracts with international related parties during the income year.

    Insurance is a means by which an entity can protect itself with an insurance company against the risk of loss. Insurance is commonly categorised into general insurance, life insurance and health insurance.

    • expenditure incurred, or
    • revenue earned or derived

    for insurance services with international related parties, including activities associated with the management of insurance contracts (predominantly undertaken through intermediaries), should be shown at question 8c.

    Reinsurance is a means by which an insurance company can protect itself with other insurance companies against the risk of losses. Therefore, the question relating to reinsurance is applicable only to insurance companies.

    • expenditure incurred or
    • revenue earned or derived

    for reinsurance services with international related parties, including activities associated with the management of reinsurance contracts (predominantly undertaken through intermediaries), should be shown at question 8d.

    The amounts reported for this question should include the expenditure and revenue that would qualify as expenditure or revenue in relation to insurance or reinsurance contracts under relevant Australian accounting standards or comparable foreign accounting standards (for example, premium revenue, claim recoveries, commissions received from reinsurers). At the time of this publication, the three key Australian accounting standards relevant to the recognition of expenditure and revenue in relation to insurance or reinsurance include AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts. As the dollar amounts in this question are based on your accounting records, you should include all of your reinsurance expenditure and revenue in terms of section 148(1) of the ITAA 1936.

    If you engaged an intermediary (for example, a broker) in arranging your insurance or reinsurance contracts, even if the intermediary was acting as an independent agent, the intermediary is considered to be acting on your behalf. Therefore, the transactions undertaken by the intermediary on your behalf should be included in your answer to this question.

    For each of your financial dealings with international related parties of a type covered by item 11d Guarantees, item 11e Insurance or item 11f Reinsurance, complete the labels for the item for that financial dealing type as follows:

    • At C, write the total expenditure you incurred for the financial dealing type.
    • At D, write the total revenue you earned or derived for the financial dealing type.
    • At E, write the Appendix 5 code for the main pricing methodology you used to set or review consideration in respect of the financial dealing type.
    • At F, write the Appendix 9 code for the percentage of your international related party dealings involving the financial dealing type for which you have documentation.

    Percentage of dealings with documentation' refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this question.

    Foreign exchange gains and foreign exchange losses

    Item 11g asks you to provide details of foreign exchange gains you have returned and foreign exchange losses you have deducted for Australian income tax purposes in relation to dealings with international related parties.

    This includes foreign exchange gains you have returned and foreign exchange losses you have deducted during the income year for trade related financial liabilities or receivables, for example:

    • foreign currency intercompany liabilities for amounts payable by you for purchase of commodities from international related parties which are satisfied during the income year
    • foreign currency intercompany receivables for amounts payable to you for provision of services to international related parties which are satisfied during the income year.

    The 2016 IDS did not include item 11g. If you have returned foreign exchange gains or deducted foreign exchange losses for your international related party dealings, we understand that you may not have accounting systems which collect all the information required to complete all parts of item 11g for the first year based on the outputs from your accounting system alone.

    If this is the case, complete item 11g using your current systems and make a best effort to estimate figures where you do not have records of the actual data. Keep a record of:

    • the nature of the foreign exchange gains returned or foreign exchange losses deducted for your international related party dealings for which you have provided best estimate figures at item 11g
    • what data you used to make this estimate.

    If you are an entity covered by the taxation of financial arrangements provisions (TOFA) in Division 230 of the ITAA 1997, your assessable foreign exchange gains and deductible foreign exchange losses for financial arrangements covered by TOFA are determined under Division 230 and Subdivision 775-F of the ITAA 1997, as applicable. For more guidance on entities covered by TOFA and the operation of TOFA, refer to the instructions for Question 20 and Guide to the taxation of financial arrangements (TOFA).

    In other scenarios assessable foreign exchange gains and deductible foreign exchange losses are determined under the provisions in Subdivisions 775-B to 775-E and Subdivisions 960-C and 960-D of the ITAA 1997.

    Foreign exchange gain refers to a foreign exchange gain attributable to fluctuations in a currency exchange rate you make as a result of a forex realisation event under the provisions.

    Foreign exchange loss refers to a foreign exchange loss attributable to fluctuations in a currency exchange rate you make as a result of a forex realisation event under the provisions.

    Under Subdivision 775-B of the ITAA 1997 there are five main types of forex realisation events:

    1. forex realisation event 1 happens if you dispose of foreign currency, or a right to receive foreign currency, to another entity
    2. forex realisation event 2 happens if you cease to have a right to receive foreign currency (other than because you disposed of the right to another entity)
    3. forex realisation event 3 happens if you cease to have an obligation to receive foreign currency
    4. forex realisation event 4 happens if you cease to have an obligation to pay foreign currency
    5. forex realisation event 5 happens if you cease to have a right to pay foreign currency.

    There are also special rules:

    • under Subdivision 775-C of the ITAA 1997, for rollover for facility agreements and special rules for securities issued under the facility agreements
    • under Subdivision 775-D of the ITAA 1997, providing an election to disregard forex realisation events 2 and 4 for qualifying forex accounts not exceeding $250,000
    • under Subdivision 775-E of the ITAA 1997, providing a choice to use the retranslation method for qualifying forex accounts instead of forex realisation events 2 and 4

    For more information about foreign exchange gains and losses, see Foreign exchange gains and losses.

    To complete this question:

    • identify all foreign exchange gains you have returned and foreign exchange losses you have deducted in relation to dealings with international related parties
    • total the dollar value of foreign exchange gains you have returned and foreign exchange losses you have deducted for each Appendix 12 transaction type
    • determine the three Appendix 12 transaction types for which you have the highest total dollar value of foreign exchange gains returned and foreign exchange losses deducted in relation to dealings with international related parties
    • in respect of the three transaction types for which you have the highest dollar value of foreign exchange gains returned and foreign exchange losses deducted in relation to dealings with international related parties, then group the foreign exchange gains returned and foreign exchange loss deducted in each of the transaction types according to the Appendix 13 currency codes
    • total the dollar value of foreign exchange gains you have returned and foreign exchange losses you have deducted for each currency code
    • determine the three Appendix 13 currencies with the highest total dollar value of foreign exchange gains returned and foreign exchange losses deducted for each of the top three transaction types
    • total the dollar value of foreign exchange gains you have returned in relation to dealings with international related parties for all other currencies that are not included at Appendix 13 currency codes
    • total the dollar value of foreign exchange losses you have deducted in relation to dealings with international related parties for all other currencies, if any, not included at Appendix 13 currency codes.

    At B, H and N, write the Appendix 12 codes for the three transaction types with the highest dollar value of foreign exchange gains returned and foreign exchange losses deducted in relation to dealings with international related parties. Write these codes in descending order of total dollar value.

    At C, I and O, write the Appendix 13 currency codes for the three currencies for which you have the highest dollar value of foreign exchange gains returned and foreign exchange losses deducted in relation to dealings with international related parties for each of the top three transaction types you have identified. Write these codes in descending order of total dollar value.

    At D, J and P, write the total amount of foreign exchange losses deducted in respect of each of the top three Appendix 13 currencies you have identified in relation to each of the top three transaction types identified.

    At E, K and Q, write the total amount of foreign exchange gains returned in respect of each of the top three Appendix 13 currencies you have identified in relation to each of the top three transaction types identified.

    At F, L and R, write the total of foreign exchange losses deducted in respect of all other currencies not included in Appendix 13 currency codes for each of the top three transaction types identified.

    At G, M and S, write the total of foreign exchange losses deducted in respect of all other currencies that are not included in Appendix 13 currency codes for each of the top three transaction types identified.

    All amounts shown at this question are in Australian dollars.

    Example

    During the income year an Australian taxpayer has returned the following foreign exchange (FX) gains and deducted the following FX losses in relation to dealings with international related parties.
    During the income year an Australian taxpayer has returned the following foreign exchange (FX) gains and deducted the following FX losses in relation to dealings with international related parties.

    Transaction type

    Currency

    Currency code

    FX losses deducted

    FX gains returned

    Total dollar value

    IRP ordinary borrowings

    US Dollar

    USD

    845,000

    150,000

    995,000

    IRP ordinary loans

    New Zealand Dollar

    NZD

    450,000

    100,000

    550,000

    IRP ordinary borrowings

    Euro

    EUR

    -

    450,000

    450,000

    IRP ordinary loans

    Canadian Dollar

    CAD

    200,000

    -

    200,000

    IRP other debt interests acquired

    British Pound

    GBP

    -

    650,000

    650,000

    IRP other debt interests acquired

    Singapore Dollar

    SGD

    1,200,000

    150,000

    1,350,000

    IRP ordinary borrowings

    British Pound

    GBP

    100,000

    1,500,000

    1,600,000

    IRP other debt interests acquired

    New Zealand Dollar

    NZD

    600,000

    150,000

    750,000

    Other IRP assets or receivables

    US Dollar

    USD

    250,000

    50,000

    300,000

    IRP ordinary borrowings

    Mexican Peso

    N/A (not included at Appendix 13 currency codes)

    -

    20,000

    20,000

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

    Transaction type

    Currency

    Currency code

    FX losses deducted

    FX gains returned

    Total dollar value

    IRP ordinary borrowings

    British Pound

    GBP

    100,000

    1,500,000

    1,600,000

     

    US Dollar

    USD

    845,000

    150,000

    995,000

     

    Euro

    EUR

    -

    450,000

    450,000

     

    Mexican Peso

    N/A (not included at Appendix 13 currency codes)

     

    20,000

    20,000

     

     

     

     

     

    3,065,000

    IRP other debt interests acquired

    Singapore Dollar

    SGD

    1,200,000

    150,000

    1,350,000

     

    New Zealand Dollar

    NZD

    600,000

    150,000

    750,000

     

    British Pound

    GBP

    -

    650,000

    650,000

     

     

     

     

     

    2,750,000

    IRP ordinary loans

    New Zealand Dollar

    NZD

    450,000

    100,000

    550,000

     

    Canadian Dollar

    CAD

    200,000

    -

    200,000

     

     

     

     

     

    750,000

    Other IRP assets or receivables

    US Dollar

    USD

    250,000

    50,000

    300,000

     

     

     

     

     

    300,000

    With this information the taxpayer completes question 11g as follows:

    Example of how to complete question 11g with amounts previously given.

    End of example

    Other financial dealings

    Item 11h asks you to provide details of your expenses and losses incurred or revenue and gains earned in relation to your other kinds of financial dealings with international related parties during the income year. At item 11h Other financial dealings report only amounts for financial dealings of a kind that are not covered by at item 9, 10, 11a, 11b, 11c, 11d, 11e and 11g.

    Other financial dealings are dealings in financial instruments that would qualify as financial assets or financial liabilities under relevant Australian accounting standards or comparable foreign accounting standards but excludes financial instruments that would be treated as a derivative for the purpose of completing question 9. At the time of this publication, the two key Australian accounting standards relevant to this question include AASB 132 Financial Instruments: Presentation and AASB 139 Financial Instruments: Recognition and Measurement. You do not need to take into account the debt and equity provisions in Division 974 of the ITAA 1997.

    The amounts reported at this question may be reported in the financial statements as revenue and gains or expenses and losses, depending on the accounting treatment of your relevant financial assets and financial liabilities. This includes amounts relating to hedging items that are classified in the financial statements as financial assets or financial liabilities. Therefore for the purposes of this question, the terms:

    • expenditure and losses are interchangeable
    • revenue and gains are interchangeable.

    For each of your financial dealings of any other kind with international related parties, complete item 11h as follows:

    • At C, write the total expenditure you incurred for the other kinds of financial dealings.
    • At D, write the total revenue you earned or derived for the other kinds of financial dealings.
    • At E, write the Appendix 5 code for the main pricing methodology you used to set or review consideration in respect of the other kinds of financial dealings.
    • At F, write the Appendix 9 code for the percentage of your international related party dealings involving the other kinds of financial dealings for which you have documentation.

      Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this question.
    • At H, write a description of the other kinds of financial dealings. The description should be limited to 200 characters.

    Question 12

    This question asks whether you had international related party dealings of a revenue nature, apart from the dealings covered in questions 5 to 11.

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

    We expect the majority of international related party dealings entered into by taxpayers to come within the types of dealings covered by questions 5 to 11.

    An international related party dealing of a revenue nature that you included at questions 5 to 11 should not be included at this question regardless of whether it was reported at questions 5 to 11 using tax or accounting figures.

    Amounts included in your answers to questions 2 to 4 may be included again at questions 5 to 11.

    If you had international related party dealings of a revenue nature, apart from the dealings covered in questions 5 to 11 answer Yes at A item 12 and complete the following:

    • At C, write the total amount of expenditure incurred with respect to these other kinds of international related party dealings of a revenue nature.
    • At D, write the total amount of revenue earned or derived in respect of these other kinds of international related party dealings of a revenue nature.
    • At E, write the Appendix 5 code for the principal arm's length pricing method used to set or review the consideration for these other kinds of international related party dealings of a revenue nature.
    • At F, write the Appendix 9 code for the percentage of these other kinds of international related party dealings of a revenue nature for which you have documentation.

      Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this question.
    • At H, write a description of the principal activity undertaken in these other kinds of international related party dealings of a revenue nature. You should limit your description to 200 characters.

    Example

    An Australian taxpayer has identified that the following international related party dealings of a revenue nature took place during the income year that are not covered by questions 5 to 11. The taxpayer has relevant documentation for 85% of the dealings.

    Consumables

    Nature of dealing

    Country

    Expenditure

    Revenue

    Pricing methodology code

     

    United States

    420,000

     

    1

     

    New Zealand

     

    170,000

    3

    Total

     

    420,000

    170,000

     

    Excess equipment

    Nature of dealing

    Country

    Expenditure

    Revenue

    Pricing methodology code

     

    New Zealand

     

    350,000

    1

    Total

     

     

    350,000

     

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

    This image is showing an example of completing Question 12.

    End of example

    Question 13

    This question asks whether you had international related party dealings of a non-revenue (capital) nature, apart from the dealings covered by questions 5 to 11.

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

    We expect the majority of international related party dealings entered into by taxpayers to come within the types of dealings covered by questions 5 to 11.

    An international related party dealing that you included at questions 5 to 11 should not be included at this question, regardless of whether it was reported using tax or accounting figures.

    Capital or revenue in nature?

    Whether dealings are capital or revenue in nature is a matter to be decided based on the facts and circumstances of each case. The leading Australian case on this topic is Sun Newspapers Ltd and Associated Newspapers Ltd v. FC of T (1938) 61 CLR 337; 5 ATD 87.

    This case established that expenditure incurred in establishing, replacing and enlarging the profit yielding structure (the business entity and structure) is of a capital nature and should be contrasted with working or operating expenses incurred to operate the business or profit yielding structure. The test laid down in the Sun newspapers case requires the following three factors to be considered and weighed in deciding whether expenditure is capital or of a capital nature:

    • The nature of the benefit or advantage obtained or secured by the incurrence of the expenditure, for example, whether the expenditure secures an enduring benefit.
    • The manner in which the benefit or advantage so obtained or secured is to be relied upon or enjoyed.
    • The means adopted to obtain or secure the benefit or advantage.

    There are many other decisions of the Australian courts applying these principles in Sun Newspapers to various cases. For more information, see ATO guidance such as taxation rulings. We strongly recommend that you obtain appropriate guidance or professional advice in relation to the particular facts and circumstances of your case.

    If you had international related party dealings of a non-revenue (capital) nature, apart from the dealings covered in questions 5 to 11, answer Yes at A item 13 and complete the following.

    Item 13a - disposal or acquisition of tangible property

    Tangible property includes plant and equipment.

    Item 13a is completed as follows in relation to your international related party dealings of a non-revenue (capital) nature involving disposal or acquisition of tangible property:

    • At C, write the total consideration paid in respect of these international related party dealings of a non-revenue (capital) nature involving disposal or acquisition of tangible property.
    • At D, write the total amount of consideration received in respect of these international related party dealings of a non-revenue (capital) nature involving disposal or acquisition of tangible property.
    • At G, write the Appendix 10 code for the principal method you used for pricing these acquisitions or disposals involving disposal or acquisition of tangible property.
    • At F, write the Appendix 9 code for the percentage of your international related party dealings of a non-revenue (capital) nature involving disposal or acquisition of tangible property for which you have documentation.

      Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this item for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this item.

    Item 13b - assignment of intellectual property

    Assignment includes assignment in law or in equity, including assignment by declaration of trust.

    Intellectual property includes:

    • trademarks
    • patents
    • registered designs
    • copyright
    • other intellectual property or similar property or rights including rights granted or protected under foreign law
    • interests in or rights granted in respect of any of the above, for example, a license to use a copyright.

    Item 13b is completed as follows in relation to your international related party dealings of a non-revenue (capital) nature involving assignment of intellectual property:

    • At C, write the total consideration paid in respect of these international related party dealings of a non-revenue (capital) nature involving assignment of intellectual property.
    • At D, write the total amount of consideration received in respect of these international related party dealings of a non-revenue (capital) nature involving assignment of intellectual property.
    • At G, write the Appendix 10 code for the principal method you used for pricing these international related party dealings involving assignment of intellectual property.
    • At F, write the Appendix 9 code for the percentage of your international related party dealings of a non-revenue (capital) nature involving assignment of intellectual property for which you have documentation.

      Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this item for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this item.

    Item 13c - assignment of shares or other equity interests

    Assignment includes assignment in law or in equity, including assignment by declaration of trust.

    Equity interests include an equity interest under Division 974 and section 820-930 of the ITAA 1997. For more guidance on what is an equity interest under Division 974, refer to Guide to the debt and equity tests.

    Item 13c is completed as follows in relation to your international related party dealings of a non-revenue (capital) nature involving assignment of shares or other equity interests:

    • At C, write the total consideration paid in respect of these international related party dealings of a non-revenue (capital) nature involving assignment of shares or other equity interests.
    • At D, write the total amount of consideration received in respect of these international related party dealings of a non-revenue (capital) nature involving assignment of shares or other equity interests.
    • At G, write the Appendix 10 code for the principal method you used for pricing these international related party dealings involving assignment of shares or other equity interests.
    • At F, write the Appendix 9 code for the percentage of your international related party dealings of a non-revenue (capital) nature involving assignment of shares or other equity interests for which you have documentation.

      Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this item for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this item.

    Item 13d - assignment of loans or debts (not liabilities)

    Assignment includes assignment in law or in equity, including assignment by declaration of trust.

    Loans or debts (not liabilities) include debt receivables and loan receivables.

    Item 13d is completed as follows in relation to your international related party dealings of a non-revenue (capital) nature involving assignment of loans or debts (not liabilities):

    • At C, write the total consideration paid in respect of these international related party dealings of a non-revenue (capital) nature involving assignment of loans or debts (not liabilities).
    • At D, write the total amount of consideration received in respect of these international related party dealings of a non-revenue (capital) nature involving assignment of loans or debts (not liabilities).
    • At G, write the Appendix 10 code for the principal method you used for pricing these international related party dealings involving assignment of loans or debts (not liabilities).
    • At F, write the Appendix 9 code for the percentage of your international related party dealings of a non-revenue (capital) nature involving assignment of loans or debts (not liabilities) for which you have documentation.

      Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this item for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this item.

    Item 13e - other disposal or acquisition of intangible property

    Other disposal or acquisition of intangible property includes the issue of new shares or other equity interests.

    The issue of equity interests include the issue of an interest which is an equity interest under Division 974 and section 820-930 of the ITAA 1997. For more guidance on what is an equity interest under Division 974, refer to Guide to the debt and equity tests.

    Item 13e is completed as follows in relation to your international related party dealings of a non-revenue (capital) nature involving other disposal or acquisition of intangible property:

    • At C, write the total consideration paid in respect of these international related party dealings of a non-revenue (capital) nature involving other disposal or acquisition of intangible property.
    • At D, write the total amount of consideration received in respect of these international related party dealings of a non-revenue (capital) nature involving other disposal or acquisition of intangible property.
    • At G, write the Appendix 10 code for the principal method you used for pricing these international related party dealings involving other disposal or acquisition of intangible property.
    • At F, write the Appendix 9 code for the percentage of your international related party dealings of a non-revenue (capital) nature involving other disposal or acquisition of intangible property for which you have documentation.

      Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this item for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this item.

    Example

    An Australian taxpayer had the following international related party dealings of a non-revenue (capital) nature during the income year that are not covered at questions 5 to 11. The taxpayer had documentation for 100% of the dealings.

    Disposal or acquisition of tangible property

    Nature of dealing

    Country

    Consideration paid

    Consideration received

    Pricing methodology code

    Plant 

    Germany

     1,550,000

     

    2

    Equipment 

    Japan

     2,200,000

     

    3

    Total

     

    3,750,000

     

     

    Assignment of intellectual property

    Nature of dealing

    Country

    Consideration paid

    Consideration received

    Pricing methodology code

    Patents

    United States

     

    1,500,000

    2

    Copyright

    United Kingdom

     

    250,000

    4

    Total

     

     

    1,750,000

     

    Assignment of shares or other equity interests

    Nature of dealing

    Country

    Consideration paid

    Consideration received

    Pricing methodology code

    Shares

    United Kingdom

     

    500,000

    6

    Total

     

     

    500,000

     

    Assignment of loans or debts (not liabilities)

    Nature of dealing

    Country

    Consideration paid

    Consideration received

    Pricing methodology code

    Loans

    Canada

     1,750,000

     

    4

    Debts

    Singapore

     

    650,000

    2

    Total

     

      1,750,000

    650,000

     

    Other disposal or acquisition of intangible property including issue of new shares or other equity interests

    Nature of dealing

    Country

    Consideration paid

    Consideration received

    Pricing methodology code

    Goodwill

    United Kingdom

     2,350,000

     

    4

    Issue of ordinary shares

    United Kingdom

     

    1,000

    1

    Total

     

    2,350,000

    1,000

     

    With this information the Australian taxpayer completes question 13 as follows:

    Example of completing question 13 with previously supplied information.

    End of example

     

    Question 14

    This question asks whether you have had any international related party dealings involving no payment or a non-monetary payment (as defined below). Information regarding the nature of these dealings and where they occurred will further assist us in identifying if there has been international related party dealings that give rise to a:

    • transfer pricing risk (but would not be reported at other questions in the schedule due to the nature of the consideration being nil or non-monetary)
    • a capital gains tax risk.

    No payment

    Where there has been no charge or other consideration payable for the provision of services, transfer of property or other benefit provided under an international related party dealing, then this would be taken to be a dealing involving no payment.

    You are not required to report at this question any interest free loans disclosed at question 11.

    You are not required to report transactions where you have received a benefit for no payment.

    You must report transactions where you have provided a benefit for no payment.

    Non-monetary payment

    A dealing involving a non-monetary payment may be a barter, swap, bonus or discount, or any type of similar arrangement.

    A non-monetary payment will generally include consideration that is not one of the following:

    • monetary payment
    • payment by cheque
    • telegraphic and bank-to-bank transfer of funds.

    Debt-for-equity swaps will be taken to be a non-monetary payment.

    Capital or revenue in nature

    See the instructions to question 13 for guidance on whether dealings are capital or revenue in nature.

    If you had any international related party dealings involving no payment or a non-monetary payment, answer Yes at A item 14 and complete the following.

    Item 14a is completed as follows in relation to your international related party dealings involving no payment:

    • At B (in the column headed Capital), write the Appendix 2 country code to indicate the location of the related party for your international related party dealings of a non-revenue (capital) nature involving no payment. If you have had more than one particular type of international related party dealings of a non-revenue (capital) nature involving no payment, use the Appendix 2 country code for such type of dealings with the highest dollar value.
    • At C (in the column headed Capital), write the Appendix 7 code to indicate the nature of the item subject of your international related party dealings of a non-revenue (capital) nature involving no payment. If you have had more than one particular type of international related party dealings of a non-revenue (capital) nature involving no payment, use the Appendix 7 code for the nature of the item for such type of dealings with the highest dollar value.
    • At D (in the column headed Revenue), write the Appendix 2 country code to indicate the location of the related party for your international related party dealings of a revenue (non-capital) nature involving no payment. If you have had more than one particular type of international related party dealings of a revenue (non-capital) nature involving no payment, use the Appendix 2 country code for such type of dealings with the highest dollar value.
    • At E (in the column headed Revenue), write the Appendix 7 code to indicate the nature of the item subject of your international related party dealings of a revenue (non-capital) nature involving no payment. If you have had more than one particular type of international related party dealings of a revenue (non-capital) nature involving no payment, use the Appendix 7 code for the nature of the item for such type of dealings with the highest dollar value.

    Item 14b is completed as follows in relation to your international related party dealings involving a non-monetary payment:

    • At B (in the column headed Capital), write the Appendix 2 country code to indicate the location of the related party for your international related party dealings of a non-revenue (capital) nature involving a non-monetary payment. If you have had more than one particular type of international related party dealings of a non-revenue (capital) nature involving a non-monetary payment, use the Appendix 2 country code for such type of dealings with the highest dollar value.
    • At C (in the column headed Capital), write the Appendix 7 code to indicate the nature of the item subject of your international related party dealings of a non-revenue (capital) nature involving a non-monetary payment. If you have had more than one particular type of international related party dealings of a non-revenue (capital) nature involving a non-monetary payment, use the Appendix 7 code for the nature of the item for such type of dealings with the highest dollar value.
    • At D (in the column headed Revenue), write the Appendix 2 country code to indicate the location of the related party for your international related party dealings of a revenue (non-capital) nature involving a non-monetary payment. If you have had more than one particular type of international related party dealings of a revenue (non-capital) nature involving a non-monetary payment, use the Appendix 2 country code for such type of dealings with the highest dollar value.
    • At E (in the column headed Revenue), write the Appendix 7 code to indicate the nature of the item subject of your international related party dealings of a revenue (non-capital) nature involving a non-monetary payment. If you have had more than one particular type of international related party dealings of a revenue (non-capital) nature involving a non-monetary payment, use the Appendix 7 code for the nature of the item for such type of dealings with the highest dollar value.

    Example 1

    A taxpayer provides core banking system software valued at $100 million to an international related party located in the United States. For the purposes of this example, assume the core banking system software forms part of the taxpayer's capital assets. The taxpayer does not charge the international related party for the software. This would meet the criteria of an international related party dealing involving no payment that was capital in nature.

    End of example

     

    Example 2

    A taxpayer purchases a derivative portfolio for $20 million from an international related party located in the United Kingdom. For the purposes of this example, assume the portfolio forms part of the taxpayer's ordinary revenue assets. If, rather than paying for the portfolio with a monetary payment (for example, $20 million funds transfer to the related party), the decision was made to satisfy the amount payable under the purchase by any of the following:

    • forgiving royalties that would otherwise be payable by the international related party
    • transferring title in a fixed asset
    • agreeing to a discount on specified future transactions.

    Therefore, this would meet the criteria of an international related party dealing involving a non-monetary payment that was revenue in nature.

    End of example

     

    Example 3

    During the current income year an Australian taxpayer had the following international related party dealings involving no payment or a non-monetary payment.

    Payment type

    Capital or revenue

    Country

    Country code

    Nature of item

    Item code

    Value of dealing

    No payment

    Capital

    United States

    USA

    Provided real property

    13

    $50m

    No payment

    Capital

    United Kingdom

    GBR

    Provided company shares

    1

    $75m

    Non-monetary payment

    Revenue

    Singapore

    SGP

    Insurance policies

    6

    $68m

    Non-monetary payment

    Revenue

    Japan

    JPN

    Loan assets

    10

    $101m

    With this information, the Australian taxpayer completes question 14 as follows:

    Question 14 of the form completed using information provided within this example.

    End of example

    Question 15

    This question seeks information to assess the specific transfer pricing risk of Australian taxpayers receiving or paying incorrect or no recharge amounts for providing or receiving employee share-based remuneration to employees of non-resident subsidiaries. We want to ascertain the level of recharge amounts being received or paid by Australian taxpayers and the pricing methodology used in respect of these amounts.

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

    Under employee shared-based remuneration plans, a multinational group may remunerate employees by providing phantom shares in the listed parent company of the group, shares, share options or share rights.

    Recharge amount is the compensation you received or paid in return for providing the employees with share-based remuneration. The recharge amount does not include any compensation received or paid in relation to the costs of administering an employee share-based plan since this would be compensation for services that you would report at question 8.

    Employees are individuals who provide personal services or labour to an entity and would be regarded as employees of that entity for legal or tax purposes. For example, employees would include the directors of a non-resident subsidiary.

    Where an employee holds a position of employment in both an Australian taxpayer and a non-resident subsidiary of the taxpayer, consideration should be given to the 'capacity' in which the share-based remuneration is received. For example, where an individual is an employee of the Australian taxpayer and a director of a non-resident subsidiary, any share-based remuneration paid by the Australian taxpayer to the individual in their capacity as a director of the non-resident subsidiary would be included at this question. This accords with the approach taken in Article 16 of the OECD Model Tax Convention regarding the allocation of taxing rights (which provides that payments received by a resident of a contracting state in their capacity as a director of a company resident in the other contracting state may be taxed in that other state).

    For more information about share-based remuneration plans for employees of non-resident subsidiaries, including application of the arm's length principle to arrive at an appropriate recharge amount, see OECD Tax Policy Studies No. 11 (2005) - The Taxation of Employee Stock Options (particularly Chapter 4 - Impact on Transfer Pricing). You can buy this at oecdbookshop.orgExternal Link

    To complete this question:

    • identify the share-based employee remuneration provided to or received from international related parties
    • determine if there is a recharge amount paid or received in relation to the share-based remuneration provided to your employees
    • determine the total amount of the recharge amounts paid by you during the income year
    • determine the total amount of the recharge amounts received by you during the income year.

    If you did provide (or receive) share-based remuneration to any employees of an international related entity during the income year, answer Yes at A item 15 and complete the following:

    • At C, write the total recharge amounts you claimed as deductions for the income year.
    • At D, write the total recharge amounts you included in your assessable income for the income year.

    Question 16

    This question seeks information to understand whether there was a cost contribution arrangement for developing, producing or obtaining assets or rights with an international related party.

    TR 2004/1 Income tax: international transfer pricing – cost contribution arrangements, paragraph 14 provides further detail on cost contribution arrangements. You should not include any cost contribution arrangements which are pure service arrangements, as described in TR 2004/1.

    If you had a cost contribution arrangement for developing, producing or obtaining assets or rights with any international related parties, answer Yes at A item 16.

    Question 17

    This question seeks to identify significant restructures undertaken between Australian taxpayers and international related parties or your branch operations. For the purposes of this question we have adopted a wide meaning of restructuring which goes beyond the generally accepted financial definition.

    Restructuring events for the purposes of this question, consistent with the definition in TR 2011/1, are arrangements whereby assets, functions or risks of a business are transferred between you and international related parties, or your branch operations. This may include:

    • reorganisation of your structure resulting in the disposal or acquisition of entities or the change in ownership of entities
    • establishing, expanding, downsizing, liquidating or relocating business operations or business lines, resulting in
      • the acquisition or the disposal of assets or liabilities (tangible or intangible)
      • the transfer of functions or the significant modification of service arrangements between yourself and international related parties (for example, this may include transfer of agency, distribution, finance, information technology, insurance, logistics, marketing, sales, shared services, shipping, trading, transport and treasury functions)
      • the transfer of risks between yourself and international related parties
      • the increase or decrease of rights or obligations
       
    • where there has been a change in the nature of the business carried on through your branch operations, for example, you have commenced or ceased to use your property in your branch operations or you have commenced or ceased to perform functions or services through your branch operations.

    There are compliance risks associated with restructures, particularly those involving international related parties. In order to analyse the compliance risks of these restructures we need to understand the nature of restructuring undertaken by Australian taxpayers with international related parties.

    This question also collects information about restructures involving your branch operations. Aspects of these restructures may be reflected in internally recorded 'dealings' with your branch that record the attribution of your income and expenditure to the branch operations. For more information, see the Introduction of these instructions.

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

    We recognise that this question asks you to determine a value for each restructure, even though there may not be payment of consideration in respect of some transactions forming part of the restructure. For these transactions we ask you to make a reasonable determination of the value. We do not expect you to obtain a formal valuation for this purpose.

    For the purpose of this question the most material restructuring events aggregates two elements:

    • The capital value of each restructure. This will be the value of the restructure shown at D in question 17a and should be the aggregated value of the restructure in terms of acquiring or disposing of assets, liabilities, functions, risks, rights or obligations.
    • The gross impact on transactions reflected in your income and expenditure for international related party dealings, including in the next five years, resulting from each restructure.

    To complete this question:

    • disregard all restructures where there is no international related party or branch operation involvement
    • determine the three most material restructure events.

    If during the income year you had restructuring event(s) involving international related parties or branch operations, answer Yes at A item 17 and complete the required fields.

    At item 17a:

    • Identify the principal international related party involved in each of the three restructures. At C, select branch B or entity E. for the type of related party involved in the restructure.
    • At D, select the code at Appendix 11 which indicates the relevant capital value of the first restructure listed, then determine the aggregated value shown in your accounting records during the income year for each remaining restructure event in terms of acquiring or disposing of assets, liabilities, functions, risks, rights or obligations.
    • At E, write the Appendix 7 code that best describes the nature of the restructure in terms of the asset, liability, function, risk, right or obligation.
    • At G, specify the code of the country in which the principal international related party to the relevant restructure was located, or the foreign country relevant to your branch operations.
    • At F, identify the code for the percentage of dealings for which you have documentation. Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at this question.
    • At H, write a brief description of the main elements of the restructure; the description should include both the initial transfer of assets, liabilities, functions, risks, rights or obligations and the resulting change in international related party dealings, including in future years. In the example below, the description could be 'ceased New Zealand branch operations, dealing in derivative contracts continued with other world-wide associates'. The description should be limited to 200 characters.
    • At I, indicate if there was a contemporaneous, professional valuation study or transfer pricing analysis of the restructuring event undertaken. Transfer pricing analysis refers to transfer pricing documentation as discussed in Appendix 9.

    At item 17b, answer Yes if you revalue any assets following the restructuring events involving international related parties or your branch operations.

    Example

    During the income year an Australian resident taxpayer shut down its New Zealand branch operations. This included ceasing to carry on trading in derivative contracts through its New Zealand branch operations. However, the taxpayer continued to carry on trading in those derivative contracts other than through its New Zealand branch. Other assets were sold to different entities.

    The following provides a summary of the transactions that were undertaken as part of the restructure.

    Item

    Disposing entity location and type

    Related to Aust taxpayer

    Acquiring entity location and type

    Related to Aust taxpayer

    Dollar value

    Derivative portfolio

    New Zealand branch

    Yes

    Australian entity (excluding New Zealand branch operations)

    Yes

    $400,000,000

    New Zealand building

    New Zealand branch

    Yes

    Jersey subsidiary

    Yes

    $45,000,000

    Furniture and equipment

    New Zealand branch

    Yes

    New Zealand entity

    No

    $21,000,000

    Total

     

     

     

     

    $466,000,000

    In this example there are several relevant events involved in closing the New Zealand branch operations. These events are all part of the same restructure.

    The Australian taxpayer does not report the transactions involving the sale of the building and furniture and equipment as an Australian resident is not a counterparty to these transactions. For this question, a resident's offshore branch operations are treated as a separate party located in the branch jurisdiction. The taxpayer has documentation covering 70% of this transaction.

    The Australian taxpayer completes question 17 as follows: 

    This image is showing an example of how to complete Question 17.

    End of example

    Question 18

    This question collects the amounts you have deducted or returned (for Australian tax purposes) for your internally recorded ‘dealings’ with your branch operations. This includes:

    • if you are a non-resident, internally recorded ‘dealings’ with your Australian branch operations
    • if you are a resident, internally recorded ‘dealings’ with or between your overseas branch operations.

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

    These amounts record the attribution of your income and expenses or costs to your branch operations, where the income or expenses or costs were not wholly or directly earned from or incurred in your branch operations. For more information, see Permanent establishments.

    This question does not collect information about amounts you have deducted or returned for actual transactions between different related persons or entities connected with the branch operations of one of those persons or entities. For example, do not show at this question, any amounts for a contract or transaction between you and your Australian resident subsidiary in relation to the offshore branch operations of your subsidiary. These amounts should be shown at the applicable labels in items 3 to 17.

    If you are an authorised deposit-taking institution (ADI) within the meaning of section 995-1 of the ITAA 1997 and are covered by TR 2005/11, include at I items 18a and 18b any funds, used in your Australian or offshore branch operations, that you have internally recorded as a 'loan' with your branch operations that records your attribution of your income or expenditure to the branch operations.

    TR 2005/11 does not apply to Australian branch operations carried on by a foreign bank (or other qualifying financial entity) to which Part IIIB of the ITAA 1936 applies. The foreign bank (or qualifying financial entity) should instead complete question 40 of this schedule in relation to internally recorded ‘loans’ to its Australian branch operations (unless it has elected under section 160ZZVB of the ITAA 1936 that Part IIIB not apply).

    If you are not an ADI covered by TR 2005/11, include at I and J item 18c the amounts that you have internally recorded for the supply or acquisition of trading stock to or from your branch operations in accordance with paragraph 5.16 of TR 2001/11 Income tax: International transfer pricing - operation of Australia's permanent establishment attribution rules.

    At I and J item 18d, show any other amounts that you have deducted or returned (for Australian tax purposes) for your internally recorded ‘dealings’ with your branch operations, and at L item 18d write a description of the kind of expenditure or cost you have deducted, or income you have returned, for the internally recorded ‘dealings’ for which you included an amount at this item 18d.

    A foreign bank (or qualifying financial entity) with Australian branch operations to which Part IIIB of the ITAA 1936 applies should also show relevant amounts at I and J item 18d, for example, any amounts taken to be paid under section 160ZZZE or section 160ZZZF.

    More than one amount and description can be included at I, J and L item 18d (the methodology is described below).

    If you have any branch operations, answer Yes at A item 18 and complete the required fields.

    At I item 18a, write the average balance of any internally recorded interest bearing loans from your branch operations.

    At I item 18b, write the average balance of any internally recorded interest bearing loans to your branch operations (excluding amounts to which question 40 of this schedule applies).

    At J item 18a, write the total interest calculated for the internally recorded loans from your branch operations shown at I item 18a.

    At J item 18b, write the total interest calculated for the internally recorded loans to your branch operations shown at I item 18b.

    At K item 18a, write the average balance of internally recorded interest free loans from your branch operations for the purpose of TR 2005/11.

    At K item 18b, write the average balance of internally recorded interest free loans to your branch operations for the purpose of TR 2005/11.

    At I item 18c, write the total purchase costs, claimed for Australian tax purposes, for internally recorded ‘trading stock transfers’ to or from your branch operations.

    At J item 18c, write the total sales proceeds, for Australian tax purposes, from internally recorded ‘trading stock transfers’ to or from your branch operations.

    At I item 18d, write the total costs or expenditure deducted, for Australian tax purposes, for any other internally recorded ‘dealings’ with your branch operations.

    At J item 18d, write the total income or other amounts returned, for Australian tax purposes, for any other internally recorded ‘dealings’ with your branch operations.

    At L item 18d, write a description of what kind of expenditure or cost you have deducted, or income you have returned, for the internally recorded ‘dealings’ with your branch operations for which you included the highest amount at I or J item 18d.

    At item 18d, if you have more than one type of other internally recorded ‘dealings’, show the requested amounts and write the required description for each type separately. That is, record an Amount claimed or an Amount returned, and write a description for each other type of internally recorded ‘dealing’. If you are lodging a paper return, provide this additional information as an attachment to the schedule.

    Example

    • If you have incurred particular salary and wages costs in deriving income both from your branch operations in a particular country and from your other operations, and you have chosen to record the attribution of those costs in an internally recorded ‘dealing’ with those branch operations, you should do both of the following
      • write at I item 18d the amount of those particular salary and wages costs you have deducted for Australian tax purposes
      • write Salary and wages at L item 18d.
       
    • If you are a resident and have entered into a currency forward to hedge foreign currency which is partly used in the course of your overseas branch operations and partly used in your other operations, and you have chosen to record the attribution of the income or loss from the currency forward in an internally recorded ‘dealing’ with those branch operations, you should do all of the following
      • write at I item 18d the amount you have deducted for Australian tax purposes in attributing the foreign currency forward to your branch operations in the internally recorded ‘dealing’
      • write at J item 18d the amount you have returned for Australian tax purposes in attributing the foreign currency forward to your branch operations in the internally recorded ‘dealing’
      • write Foreign currency forward at L item 18d.
       
    End of example

    Section B: Financial arrangements

    Question 19

    This question seeks to help us assess the risk that an interest has been mischaracterised as either:

    • a debt interest and inappropriate tax deductions have been claimed
    • an equity interest and inappropriate franked distributions have been made.

    The information reported at this question may also help us in doing both of the following:

    • identifying arrangements with international related parties where the use of hybrid instruments may indicate a tax risk
    • assessing any risk regarding your thin capitalisation position.

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

    The terms debt interest and equity interest are defined in Division 974 of the ITAA 1997.

    To complete this question:

    • identify all debt and equity interests you had on issue or which you held during the income year that were on issue to or issued by international related parties and where the characterisation between debt and equity is different under Division 974 of the ITAA 1997 from your treatment for accounting purposes
    • identify which of those financing arrangements would be classified as debt interests and which would be classified as equity interests under Division 974 of the ITAA 1997
    • identify which of those financing arrangements under which you received finance from a related party and those under which you provided finance to a related party
    • calculate the average quarterly balance of each relevant financing arrangement (by adding the relevant financing arrangement amount at the end of each quarter and dividing by four)
    • add up the total of the average quarterly balances of each financial arrangement under which you
      • received finance from a related party that is characterised as a debt interest under Division 974 of the ITAA 1997
      • provided finance to a related party that is characterised as a debt interest under Division 974 of the ITAA 1997
      • received finance from a related party that is characterised as an equity interest under Division 974 of the ITAA 1997
      • provided finance to a related party that is characterised as an equity interest under Division 974 of the ITAA 1997.
       

    If you had financing arrangements to which this question applies, answer Yes at A item 19 and complete the required fields.

    At item 19, write the average quarterly balance of debt interests issued (finance received).

    At C item 19, write the average quarterly balance of debt interests held (finance provided.

    At D item 19, write the average quarterly balance of equity interests issued (finance received).

    At E item 19, write the average quarterly balance of equity interests held (finance provided.

    For help working out the tax characterisation of an interest as debt or equity (debt and equity tests), see:

    Example

    Bob & Co analyses the financial arrangements they had during the income year that were entered into with international related parties where the debt and equity treatment under Division 974 of the ITAA 1997 is different from the debt and equity treatment for accounting purposes.

    Bob & Co identifies the following information:

    Financial arrangements

    Tax treatment

    Received or provided

    Quarter 1

    Quarter 2

    Quarter 3

    Quarter 4

    Redeemable preference shares

    Equity

    Received

    35,000,000

    27,000,000

    42,000,000

    23,000,000

    Convertible notes

    Debt

    Received

    16,800,000

    16,800,000

    16,800,000

    16,800,000

    Perpetual notes

    Debt

    Provided

    31,000,000

    28,500,000

    25,000,000

    22,500,000

    Stapled security

    Equity

    Received

    27,500,000

    32,500,000

    32,500,000

    0

    Bob & Co then collates the following information for those financial arrangements where the debt equity characterisation under Division 974 of the ITAA 1997 is different from their treatment for accounting purposes.

    Financial arrangements where the debt equity characterisation under Div 974 is different from their treatment for accounting purposes.

    Financial arrangements

    Average quarterly balances Div 974 treats as debt - Received

    Average quarterly balances Div 974 treats as debt - Provided

    Average quarterly balances Div 974 treats as equity - Received

    Average quarterly balances Div 974 treats as equity - Provided

    Redeemable preference shares

    N/A

    N/A

    31,750,000

    N/A

    Convertible notes

    16,800,000

    N/A

    N/A

    N/A

    Perpetual notes

    N/A

    26,750,000

    N/A

    N/A

    Stapled security

    N/A

    N/A

    23,125,000

    N/A

    Total

    16,800,000

    26,750,000

    54,875,000

    0

    With this information Bob & Co complete question 19 as follows: 

    This is image is howing an exmaple of how to complete question 19.

    End of example

    Question 20

    This question aims to identify if you are subject to taxation of financial arrangements (TOFA) rules contained in Division 230 of ITAA 1997. Understanding whether you are subject to the TOFA rules and the tax timing method elections you have made will provide us with the context to understand the information you report regarding your financial arrangements.

    The TOFA rules will apply to you if your aggregated turnover, financial assets or assets exceed relevant thresholds or you have otherwise made an election for the TOFA rules to apply.

    If you are subject to the TOFA rules contained in Division 230 of the ITAA 1997 answer Yes at A item 20 and complete the required fields.

    If you answer Yes, you must specify which (if any) of the tax timing method elections you have made to assess your gains and losses from financial arrangements, at B to F item 20. If no election was made, you should complete G. These tax timing method elections are contained in subdivisions 230-C to 230-F of the ITAA 1997.

    For help working out if Division 230 of the ITAA 1997 applies to you and the relevant threshold tests, see:

    Example

    ABC Co is an authorised deposit taking institution and the TOFA rules apply to all of its financial arrangements entered into on or after 1 July 2010.

    ABC Co has made elections in accordance with Division 230 of the ITAA 1997 to apply the fair value method and the foreign exchange retranslation method – general election.

    With this information, ABC Co would complete question 20 as follows: 

    This image is showing an example of how to complete Question 20.

    End of example
    Last modified: 07 Jul 2017QC 51248