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  • Question 3

    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

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

    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 or jurisdictions
    • group your remaining dealings according to the country or jurisdiction 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 or jurisdiction
    • determine the three countries or jurisdictions that have the highest dollar value of related party dealings
    • in respect of the three countries or jurisdictions with the highest dollar value of international related party dealings, group the dealings in each of the countries or jurisdictions 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 or jurisdictions.

    If you had international related party dealings during the income year, disregarding your dealings with parties located in any of the specified countries or jurisdictions 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 or jurisdictions with the highest dollar value in respect of your dealings with international related parties located in countries or jurisdictions apart from specified countries or jurisdictions. 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 or jurisdictions 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 or jurisdiction 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 or jurisdiction 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 or jurisdiction 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 or jurisdiction identified.

    Example

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

    Country or jurisdiction 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

    0

    870,000

    870,000

    Egypt

    100% subsidiary

    Advisory services

    2

    0

    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

    0

    295,000

    295,000

    France

    100% subsidiary

    Advisory services

    2

    0

    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 or jurisdiction 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

    0

    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
    Last modified: 06 Nov 2018QC 55230