• Division 815 Technical working group Minutes - 26 February 2015

    Meeting details

    Venue:

    747 Collins St Melbourne

    52 Goulburn St Sydney

    Teleconference

    Date:

    26 February

     

     

    Start:

    10.00am

    Finish:

    1.00pm

    Chair:

    Michael Jenkins

    Facilitator:

    Caroline Briers

    Contact and Secretariat:

    Caroline Briers

    Contact phone:

    (03) 9285 1502

    Attendees

    ATO Members

     

    Michael Jenkins

    Assistant Commissioner, Public Groups and International

    Caroline Briers

    Secretariat

    Helen Kelly

    Senior Tax Counsel

    David Honybun

    Assistant Commissioner, Economist Practice

    Kevin O'Shaughnessy

    Senior Director, Technical Leadership Group

    Daryl Cornish

    Director, Profit Shifting Practice (Project Manager)

    Shahzeb Panhwar (for Paul Korganow)

    Director, Profit Shifting Practice

    Ron Stevenson

    Director, International Dealing Schedule

    Michelle Osler

    Technical Leadership Group

    Mae Ling Yee

    Technical Leadership Group

    Gloria Cassimatis

    APA Program management unit

    External representatives

    Reynah Tang

    LCA

    Soulla McFall

    CPAA

    Paul Suppree

    CTA

    Vanda Davis

    FCAI

    Damian Preshaw

    TIA

    Anthony Seve

    ICAA

    Wayne Sutherland

    ABA

    Sharon Jansen

    MCA

    Stuart Edwards

    ATO appointee

    Jake Meyer (for Denise Honey)

    ATO appointee

    Michael Kobetsky

    ATO appointee

    Chris Bowman

    ATO appointee

    Apologies

    Catherine Armstrong

    ATO

    Paul Korganow

    ATO

    Denise Honey

    ATO appointee

    Agenda items

    Disclaimer

    Division 815 Technical working group agendas, minutes and related papers are not binding on the Australian Taxation Office (ATO) or any of the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

    1. Introduction and Welcome

    Michael Jenkins welcomed members and introduced Paul Suppree, who has replaced Michelle deNiese as the CTA representative.

    2. Minutes of 26 November meeting

    Member requested change to minutes in other business regarding 815-130(2) and the power to impute and an action item for the ATO to consider this.

    ATO agreed to consider the issue offline and report at the next meeting.

    Action Item number

    26022015.01

    Action item name

    Consider 815-130(2) power to impute issue and report next meeting

    Responsibility

    ATO

    Status

    Open

    Expected delivery date

    May meeting

    2.1 PSLA for outbound interest free loans

    Members advised:

    • They consider this should be a priority ruling as quasi equity has been a big issue in the market
    • There is no OECD guidance, 92/11 is Division 13, doesn't cover new law or Article 9
    • Also issues regarding inbound interest free loans and possible interest withholding tax
    • Members requested details of the broader ATO safe harbours project.

    The ATO advised:

    • There is a broader piece of work being established under the Safe Harbour Steering Group
    • First meeting held in November to look at practical safe harbours across several areas including transfer pricing
    • By design they are small groups and Michael Jenkins is the ATO representative on the transfer pricing group

    Members raised concerns:

    • There are a number of different groups including dispute resolution, many of which have transfer pricing elements
    • Groups may not have people with transfer pricing expertise
    • Can issues be brought to this group or do members need to get across all of the groups?

    Michael Jenkins agreed that he will keep the group informed of developments underway that relate to transfer pricing, on a reporting basis only, not to discuss issues.

    Action Item number

    26022015.02

    Action item name

    Standing agenda item - report on developments on transfer pricing issues

    Responsibility

    Secretariat

    Status

    Open

    Expected delivery date

    Next meeting

    Action items 26112014.02 to 26112014.05 have been actioned out of session and will now be closed

    3. Updates

    3.1 APA program

    Gloria Cassimatis from the APA program management unit, attended via phone and addressed this item. The ATO advised:

    • APAs are not being rejected, however there is a need to understand the business and this often leads to requests for further information
    • Life cycle of new product is six months, if information is not received in that timeframe then it will be closed
    • Rewrite of PSLA is underway and aiming for publication by the end of June
    • Cameron, Gloria and Michael have been undertaking visits to large tax practitioner firms in Sydney and Melbourne to discuss the program
    • Conference planned for Sydney in April, will give details of what APA statistics will be provided going forward
    • Regarding action item 26112014.01 regarding APAs being revoked, this request has been forwarded to the International Gatekeeper and is being considered

    The Law Council queried the visits to large tax practitioner firms and requested whether a similar session could be held for a group of their members.

    Action Item number

    26022015.03

    Action item name

    APA Program session for Law Council

    Responsibility

    ATO

    Status

    Open

    Expected delivery date

    April 2015

    3.2 ATO/Treasury/Customs work

    The ATO advised:

    • Meeting held Monday 23 February 2015
    • WTO/OECD workshop held in South Korea, Customs attended
    • Feedback is that Australia is a leader in this area, best practice
    • Customs and ATO will endeavour to work together to find efficiencies
    • Customs to analyse the number of ATO/Customs adjustment requests to quantify issue
    • Looking for case studies to see what is happening, one submission just prior to meeting but haven't had time to analyse yet
    • ATO and Customs considering whether documentation produced by ATO around imported dutiable goods would be suitable for Customs purposes, work in progress.
    • Next meeting proposed for 22 May 2015, prior to next Div. 815 group meeting

    3.3 International Dealings Schedule

    The chair advised that we will hold over until Ron Stevenson is in attendance.

    4. Discussion

    4.1 PSLA on exceptions to the basic rule in 815-130

    The ATO advised:

    • PSLA will be released today (26 February) at 2.00pm
    • Thanks to members for feedback, compendium provided
    • Some changes have been made but not as many as the group would like
    • Most frequent comment was for the taxpayer to see papers before anything was escalated and to have the chance to present as well
    • Also feedback about not delaying the audit process
    • Other opportunities to address position through the process

    4.2 Proposed TR on consequential adjustments under 815-145

    Scoping document was provided to members in advance of meeting. The ATO advised:

    • Acknowledge the issue raised earlier regarding quasi-equity and wanting an holistic view of inbound/outbound loans
    • There is a need to address the effect of 815-130 when transaction entered into in an income year that commenced before 29 June 2013 and there is an adjustment in future years
    • Issue 7 on the list of issues (2000/16) may not be relevant to this and may need to be addressed separately

    4.3 PSLA on Penalties under 815-A

    The ATO advised:

    • PSLA written but not yet approved
    • Penalties will apply as what would have been under Division 13
    • PSLAs do not need to be sent out as drafts, therefore it will proceed directly to publication once it is approved

    3.3 International Dealings Schedule

    Ron Stevenson returned to address this item. The ATO advised:

    • As an action item from the Inspector General of Taxation’s report into Transfer Pricing, the ATO is undertaking a review of the IDS and the associated compliance costs for Large and SME enterprises
    • We have commenced the co-ordination of our consultation process, starting the logistics in speaking to large tax practitioners. We have identified clients across the Large & SME markets to whom we intend to ask their participation covering a broad perspective
    • Instructions for 2015 IDS are currently being reviewed and having last minute adjustments being made and it is expected that these will be signed off by TCN in the coming weeks.
    • The IDS instructions have been updated to reference TR 2014/8

    4.4 Whether old rulings are applicable to new law – need for an interpretive product?

    The ATO advised:

    • Considered whether the law conveys the same ideas and could be seen as re-enacted law, or whether it is remaking of law
    • Consensus is that it may be remade law, with new concepts
    • Dilemma as many of the old rulings refer to Division 13 as a whole, others about particular provisions within
    • Where it is a broad provision, there is no comparable in new law, where a specific provision is referred to, it needs to be compared to a specific provision in the new law
    • Difficult therefore to provide a broad comparison as the two laws do not convey the same ideas
    • Preferred option is therefore to create specific products to address new law rather than attempt to amend existing products

    Members discussed issues that they considered need to be addressed and agreed:

    • Services rulings - the concepts apply but now covered by OECD guidelines
    • Two key areas in cost contribution arrangements that aren't covered:
      • Pure service arrangements - could be dealt with in a TD
      • Employee stock option costs - currently in 94/11
       
    • Main priority is quasi equity issue discussed earlier

    The ATO requested that members consider the issue and advise out of session of any other priorities

    Action Item number

    26022015.04

    Action item name

    Advise ATO of other priorities for work

    Responsibility

    Members

    Status

    Open

    Expected delivery date

    End March 2015

    4.5 Inspector General of Taxation recommendations regarding publication of benchmark data

    The ATO advised:

    • Would like feedback from the group about options
    • Tables of information can be misleading
    • Research and analytical work is time consuming
    • Question relevance and usefulness of broad based numbers as cases often turn on individual facts and circumstances
    • Internal discussions suggested APA case studies may be useful

    After discussion the ATO agreed to road test some options at the next meeting

    Action Item number

    26022015.05

    Action item name

    Provide samples of options for IGoT benchmark data

    Responsibility

    ATO

    Status

    Open

    Expected delivery date

    May 2015

    4.6 Priority work going forward

    The ATO provided the updated product and issues list and the group went through this. Agreed outcomes are:

    • Item 7, TR 2000/16, will be delinked from item 6 on consequential adjustments
    • Items 9 and 17 on financing will be dealt with in two rulings, the first one will be on arm's length conditions, the one on pricing will be done subsequently
    • Where possible want consistency in analysis for 815 and 820 tests to get synergy
    • Item 15 - Chapter 9 of OECD guidelines covers similar ground to 2011/1
    • TD 2008/20 was considered low priority for this group, however will be considered sooner due to concerns of 768-A consultation group

    Member raised concern regarding the withdrawal of online advice products on attribution of profits to a dependent agent permanent establishment and marketing intangibles as considers they are still applicable under the old law.

    4.6.1 Record keeping simplification - large market

    Assistant Commissioner Mat Umina attended for this item which was raised in quarterly consultation with the Minerals Council of Australia. The issue relates to the new simplification measures which take away the certainty that was available under the old law in TR 1999/1.

    The ATO advised:

    • 99/1 was under Division 13, the new law is based on self-assessment
    • Under the self-assessment regime the ATO can't carve out from the statutory test, can only provide practical administrative safe harbours
    • The safe harbour working group will be considering possible areas that can be looked at as 'safe-to-swim' zones and deminimis thresholds for large business
    • 284-E is non-mandatory, part of the risk decision of the taxpayer, if you are comfortable with you risk position you can document that and how you take your position

    5. Other business

    Nil

    Next meeting

    The remaining meetings for 2015 are scheduled for Wednesday 27 May, Tuesday 25 August and Tuesday 24 November.

      Last modified: 07 Jul 2015QC 46223