[4000] Royalties and software
Title
Final Taxation Ruling
Income tax: royalties – character of receipts in respect of software
Purpose
Advice on the development and marketing of software was previously provided in Taxation Ruling TR 93/12 Income tax: computer software (now withdrawn). There is a need to provide updated guidance on modern forms of software distribution, including digital channels and cloud computing. This Ruling will provide the Commissioner’s view on the circumstances in which amounts in respect of the licensing and distribution of software will be royalties as defined in subsection 6(1) of the Income Tax Assessment Act 1936.
Expected completion
In November 2024, the High Court granted special leave to appeal against PepsiCo, Inc v Commissioner of Taxation [2024] FCAFC 86. The ATO has deferred finalisation of the draft ruling pending the High Court’s decision on the appeal. See ATO seeks special leave to appeal to the High Court in PepsiCo Inc v Commissioner of Taxation.
Comments
Draft Taxation Ruling TR 2021/D4 Income tax: royalties – character of receipts in respect of software published on 25 June 2021. Having regard to comments and submissions received in relation to TR 2021/D4, the Commissioner prepared a further draft Ruling. Draft Taxation Ruling TR 2024/D1 Income tax: royalties – character of payments in respect of software and intellectual property rights published on 17 January 2024. Comments period closed 1 March 2024 and all submissions are currently being considered.
Contact
IntangiblesArrangements@ato.gov.au
[4116] Thin capitalisation [updated]
Title
Multinational tax integrity – strengthening Australia’s interest limitation (thin capitalisation) rules
Purpose
On 8 April 2024, the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Act 2024 (the Act) received Royal Assent.
The ATO is proposing to provide guidance setting out the Commissioner’s views on, and approach to, key aspects of the new thin capitalisation and debt deduction creation rules contained in Schedule 2 of the Act.
Consultation on potential guidance topics, prioritisation and form closed on 30 April 2024. On 10 May 2024, we published a summary of PAG topics, outlining topics raised by stakeholders and how these will be prioritised.
The high-priority topics we intend to resource immediately are:
- restructures in response to the new law
- third party debt test – key concepts, and
- interaction of transfer pricing and the new thin capitalisation rules.
We continue to engage with stakeholders on the high-priority topics to develop specific public advice and guidance products. We encourage stakeholders to provide specific, practical examples that clearly demonstrate issues raised, including reference to the relevant provisions and analysis of their potential application.
Expected completion date
Consultation on potential guidance topics, prioritisation and form closed on 30 April 2024.
See below for expected publication dates of proposed public advice and guidance.
Contact
Stephen Dodshon, Public Groups
Erin Gordon, Office of the Chief Tax Counsel
For more information, see Consultation matter.
Title
Final Practical Compliance Guideline
Restructures and the new thin capitalisation and debt deduction creation rules
Purpose
The first priority topic is compliance guidance on the Commissioner’s application of Part IVA and the debt deduction creation rules' (DDCRs) specific anti-avoidance provision (section 820-423D of the Income Tax Assessment Act 1997) to certain restructures in response to the new law.
Expected completion date
To be advised
Comments
An update to Draft Practical Compliance Guideline PCG 2024/D3 Restructures and the thin capitalisation and debt deduction creation rules – ATO compliance approach published on 4 December 2024. Comments period closes on 7 February 2025.
Contact
Stephen Dodshon, Public Groups
Title
Final Taxation Ruling
Third party debt test
Purpose
The second priority topic is a public ruling on the third party debt test.
This guidance focuses on the qualifying third party debt conditions in subsection 820-427A(3) of the Income Tax Assessment Act 1997. This includes key conditions that debt interests issued by an entity must satisfy, such as recourse being only to Australian assets and the proceeds of the debt interest funding commercial activities in connection with Australia.
Expected completion date
To be advised
Comments
Draft Taxation Ruling TR 2024/D3 Income tax: aspects of the third party debt test in Subdivision 820-EAB of the Income Tax Assessment Act 1997 published on 4 December 2024. Comments period closes 7 February 2025.
Contact
Stephen Dodshon, Public Groups
Title
Draft Practical Compliance Guideline
Factors to consider when determining the amount of your cross-border related party finance arrangement
Purpose
The third priority topic is practical guidance in relation to the arm’s length amount of a debt interest for transfer pricing purposes (subdivision 815 B of the Income Tax Assessment Act 1997). This guidance will focus on broad-based principles for taxpayers to consider in determining and testing the amount of their cross-border related party finance arrangement. It also outlines specific features of financing arrangements and transfer pricing analysis which we would view as being cause for concern.
This public advice and guidance is currently under development.
Expected completion date
January 2025
Contact
Nick Trotman, Public Groups
[4144] Inbound related-party financing for private groups in the property and construction industry
Title
Web guidance
Inbound related-party financing for private groups in the property and construction industry
Purpose
This guidance will help privately owned and wealthy groups in the property and construction industry comply with their obligations and mitigate tax risks associated with their inbound related-party financing arrangements. It will also include examples of inbound related-party financing arrangements.
Expected completion date
Late 2024.
Comments
We have consulted with external stakeholders and industry groups to seek feedback on the proposed guidance and examples.
Contact
Lynette Purcell, Private Wealth International Program
Phone: (08) 9268 6091
For more information, see Consultation matter [202408].
[4148] Public country-by-country reporting transparency measure and exemption discretions
Title
Law Administration Practice Statement
Public country-by-country reporting exemptions
Purpose
This Practice Statement will outline the Commissioner’s approach to proposed public country-by-country (CBC) reporting exemptions in the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, should it be enacted. The guidance will include:
- the process for submitting applications
- information that should be provided with applications, and
- considerations relevant to the exercise of the discretion sought.
Expected completion date
March 2025.
Comments
Draft law is before Parliament which, if enacted, will legislate to create exemptions to public CBC reporting obligations, which the Commissioner will be empowered to exercise. This Practice Statement will provide staff instruction on exercising these powers and provide guidance to applicants on seeking an exemption.
This Practice Statement aligns with the expectation expressed in paragraph 4.24 of the Explanatory Memorandum to the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024.
Contact
Abi Boyd, Public Groups
Phone: (02) 6216 8496
[4168] Royalty withholding tax and software arrangements [updated]
Title
Draft Practical Compliance Guideline
Royalty withholding tax and software arrangements – ATO compliance approach
Purpose
The draft Practical Compliance Guideline is intended to guide taxpayers in understanding where the ATO is likely to apply compliance resources in relation to royalty withholding tax risk potentially present in software arrangements. It will provide important practical guidance for taxpayers to accompany the technical position set out in Draft Taxation Ruling TR 2024/D1 Income tax: royalties – character of payments in respect of software and intellectual property rights.
The draft Guideline is currently being developed and will be released for public consultation to shape its administrative approach and ensure it provides greater certainty for taxpayers on what the view in TR 2024/D1 will mean in practice.
Expected completion
We intend to release the draft Practical Compliance Guideline for consultation in January 2025.