Section A: International related party dealings

Question 2

If during the income year, the aggregate amount of your international related party dealings, including the value of any property/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.

The amounts reported at this question may be reported in the financial statements as revenue/gains or expenses/losses, depending on the accounting treatment of the relevant item (for example, for derivatives you may report revenue/expenses from net cash flows and/or you may report a gain/loss in fair value). Therefore for the purposes of this question, the terms ‘expenditure’ and ‘losses’ are interchangeable and the terms ‘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, you need to:

• 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/losses plus the total amount of revenue/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/losses plus revenue/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/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/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/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/gains for international related party dealings for the relevant country identified.

Find out more

For the list of:

• country names and codes, see Appendix 2
• activity types and codes, see Appendix 4

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	na	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:

 

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/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.

Find out more

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, you need to:

• 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/losses plus revenue/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/gains plus revenue/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/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/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/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/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).

Find out more

For the list of:

• specified countries codes, see Appendix 1
• activity types and codes, see Appendix 4

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	na	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

 

 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 (as per TR 98/11) expressed as a percentage of total dollar value of transactions reported at this question.

Find out more

For the list of:

• main pricing methodologies codes, see Appendix 5
• percentage of dealings with documentation codes, see Appendix 9

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 the term ‘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 (refer 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 in respect of the royalties payable by and/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 (as per TR 98/11) 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 in respect of the licence fees payable by and/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 (as per TR 98/11) expressed as a percentage of total dollar value of transactions reported at this question.

Find out more

For the list of:

• main pricing methodologies codes, see Appendix 5
• percentage of dealings with documentation codes, see Appendix 9

Question 7

This question seeks information to assess transfer pricing risks arising from rent and/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.

The terms ‘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 and/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/or leasing charges or fees incurred by you in respect of your dealings with international related parties.
• At D, write the total amount of rent and/or 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/or 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 (as per TR 98/11) expressed as a percentage of total dollar value of transactions reported at this question.

Find out more

For the list of:

• main pricing methodologies codes, see Appendix 5
• percentage of dealings with documentation codes, see Appendix 9

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.

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/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 (refer to Employers Mutual Indemnity Association Ltd v. Federal Commissioner of TaxationExternal Link[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, then you can either make a best effort to estimate an allocation to the service categories, or show the amount at ‘Other services’ and write a clear description of the nature of the various 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 and/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 services are activities involved in the control, facilitation, and monitoring of the taxpayer's human resources (staffing) and financial resources (assets).

Administration services are activities that relate to the operation of the taxpayer, including:

• back office services
• administrative services associated with employee share-based plans/recharge amounts
• accounting services.

Administration services excludes 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 fee associated with insurance contracts should be shown at question 11.

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 fee associated with reinsurance contracts should be shown at question 11.

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.

To complete this question, you need to:

• 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 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, 8b, 8c, 8d, 8e, 8f, 8g, 8h, 8i, or 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 (as per TR 98/11) expressed as a percentage of total dollar value of transactions reported at this question.

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 (as per TR 98/11) expressed as a percentage of total dollar value of transactions reported at this question.
• At H, write a description of the other kinds of services. The description should be limited to 200 characters.

Find out more

For the list of:

• main pricing methodologies codes, see Appendix 5
• percentage of dealings with documentation codes, see Appendix 9

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		na
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.

Service arrangement type	Country	Expenditure	Revenue	Pricing methodology code	Percentage of documentation
Treasury related services
	India		210,000	1	6
	Indonesia		190,000	1	6
	New Zealand		170,000	1	6
Total			570,000	1	6
Management services
	Singapore	290,000		1	5
Total		290,000		1	5
Software & information technology
	India	200,000		12	6
	United States		350,000	3	6
Total		200,000	350,000	3	6
Administrative services
	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
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:

 

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.

The term '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/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/gains or expenses/losses, depending on the accounting treatment of your derivatives (and this includes amounts relating to derivatives entered into that are part of a hedging purposes). Therefore for the purposes of this question, the terms ‘expenditure’ and ‘losses’ are interchangeable and the terms ‘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.

Find out more

To complete this question, you need to:

For a discussion of what might constitute global trading, refer to paragraphs 9 to 11 of the Introduction of OECD Document - The Taxation of Global Trading of Financial Instruments (1998). You can purchase a copy at oecdbookshop.orgExternal Link

• 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 (as per TR 98/11) 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.

Find out more

For the list of:

• main pricing methodology codes, see Appendix 5
• derivative codes, see Appendix 6
• percentage of dealings with documentation codes, see Appendix 9

Example

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

 

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.

The terms ‘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 need to:

• 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/assigned to the factor for each of these arrangements
  • calculate the total book value of the receivables for all these arrangements
  • ascertain the consideration/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 (as per TR 98/11) 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 (as per TR 98/11) 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 (as per TR 98/11) 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 (as per TR 98/11) expressed as a percentage of total dollar value of transactions reported at this question.

Find out more

For the list of:

• main pricing methodology codes, see Appendix 5
• percentage of dealings with documentation codes, see Appendix 9

With this information the Australian taxpayer completes question 10 as follows:

 

Question 11

This question collects information about your dealings of a financial nature (including loans) with international related parties.

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

Loans and interest

A 'loan arrangement' should be given 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.

Find out more

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

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 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/losses or revenue/gains associated with these arrangements, such as borrowing costs or foreign exchange gains/losses, should be included at item 11g.

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

To complete this part of the question you need to:

• 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.

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.

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 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.

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.

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/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 11dGuarantees, item 11eInsurance or item 11fReinsurance, 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 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 (as per TR 98/11) expressed as a percentage of total dollar value of transactions reported at this question.

Other financial dealings

Item 11g asks you to provide details of your expenses/losses incurred or revenue/gains earned in relation to your other kinds of financial dealings with international related parties during the income year.

'Other financial dealings' refers to 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 the debt/equity provisions in Division 974 of the ITAA 1997 into account.

The amounts reported at this question may be reported in the financial statements as revenue/gains or expenses/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 and the terms 'revenue' and 'gains' are interchangeable.

For each of your financial dealings of any other kind with international related parties, complete item 11g 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 (as per TR 98/11) 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.

Find out more

For the list of:

• main pricing methodology codes, see Appendix 5
• percentage of dealings with documentation codes, see Appendix 9

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

 

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 (as per TR 98/11) 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.

For the list of:

• main pricing methodology codes, see Appendix 5
• percentage of dealings with documentation codes, see Appendix 9

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

 

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.

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

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 87External Link. This case established that expenditure incurred in establishing, replacing and enlarging the profit yielding structure (i.e. the business entity/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, refer to ATO guidanceExternal Link 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 is completed as follows in relation to your international related party dealings of a non-revenue (capital) nature involving tangible property:

• At C, write the total consideration paid in respect of these international related party dealings of a non-revenue (capital) nature involving 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 tangible property.
• At G, write the Appendix 10 code for the principal method you used for pricing these acquisitions or disposals involving the tangible property.
• At F, write the Appendix 10 code for the percentage of your international related party dealings of a non-revenue (capital) nature involving tangible property 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 (as per TR 98/11) expressed as a percentage of total dollar value of transactions reported at this question.

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

• At C, write the total consideration paid in respect of these international related party dealings of a non-revenue (capital) nature involving 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 intangible property.
• At G, write the Appendix 10 code for the principal method you used for pricing these acquisitions or disposals involving the intangible property.
• At F, write the Appendix 10 code for the percentage of your international related party dealings of a non-revenue (capital) nature involving intangible property 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 (as per TR 98/11) expressed as a percentage of total dollar value of transactions reported at this question.

Find out more

For the list of:

• percentage of dealings with documentation codes, see Appendix 9
• capital asset pricing methodology codes, see Appendix 10

 

 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 are required to 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.

Find out more

For the:

• list of country names and codes, see Appendix 2
• nature of item codes, see Appendix 7

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

 

 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.

The 'recharge amount' refers to 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.

The term 'employees' refers to 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).

Find out more

To complete this question you need to:

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

• 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 TR2004/1.

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 the term '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, refers to arrangements whereby assets, functions and/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 and/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 you need to:

• 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 (as per TR 98/11) 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 prepared in accordance with the guidance provided in TR 98/11

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

Find out more

For the list of:

• country names and codes, see Appendix 2
• Appendix 7 codes, see Appendix 7
• percentage of dealings with documentation codes, see Appendix 9
• capital values of a restructure, see Appendix 11

The Australian taxpayer completes question 17 as follows:

 

 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.

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/costs to your branch operations, where the income or expenses/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 and 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 (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/cost you have deducted, or income you have returned, for the internally recorded ‘dealings’ for which you included an amount at this item 18d.

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/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.

For 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 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.
   

Find out more

For more information, see:

• TR 2001/11 Income tax: International transfer pricing - operation of Australia's permanent establishment attribution rules
• TR 2005/11 Income tax: branch funding for multinational banks