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  • Question 4

    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 any potential compliance risks in respect of Australian taxpayers' international related party dealings in specified countries or jurisdictions, 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 or jurisdictions, 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 or jurisdictions during the income year
    • group your dealings according to the country or jurisdiction 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 or jurisdiction
    • determine the three countries or jurisdictions that have the highest dollar value of related party dealings
    • then, 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 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 or jurisdictions.

    If you had related party dealings with entities in any of the specified countries or jurisdictions 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 or jurisdictions with the highest dollar values for your dealings with international related parties located in 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 each of the three activity types with the highest dollar value for your international related party dealings for each of the three specified countries or jurisdictions. Write these activity codes in descending order of total dollar value for each of the three activity types for each specified country or jurisdiction.

    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 or jurisdiction 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 or jurisdiction 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 or jurisdiction for which you have written the country or jurisdiction 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 or jurisdiction for which you have written the country or jurisdiction 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 or jurisdictions.

    Activity

    Relation to taxpayer

    Country or jurisdiction 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 or jurisdictions 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
    Last modified: 06 Nov 2018QC 55230