INCOME TAX ASSESSMENT ACT 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 815 - Cross-border transfer pricing  

Subdivision 815-B - Arm ' s length principle for cross-border conditions between entities  

Operative provisions

SECTION 815-120   When an entity gets a transfer pricing benefit  

815-120(1)  
An entity gets a transfer pricing benefit from conditions that operate between the entity and another entity in connection with their commercial or financial relations if:


(a) those conditions (the actual conditions ) differ from the *arm ' s length conditions; and


(b) the actual conditions satisfy the cross-border test in subsection (3) for the entity; and


(c) had the arm ' s length conditions operated, instead of the actual conditions, one or more of the following would, apart from this Subdivision, apply:


(i) the amount of the entity ' s taxable income for an income year would be greater ;

(ii) the amount of the entity ' s loss of a particular *sort for an income year would be less ;

(iii) the amount of the entity ' s *tax offsets for an income year would be less ;

(iv) an amount of *withholding tax payable in respect of interest or royalties by the entity would be greater .
Absence of condition

815-120(2)  
For the purposes of subsection (1), there is taken to be a difference between the actual conditions and the *arm ' s length conditions if:


(a) an actual condition exists that is not one of the arm ' s length conditions; or


(b) a condition does not exist in the actual conditions but is one of the arm ' s length conditions. Cross-border test

815-120(3)  
Conditions that operate between an entity and another entity in connection with their commercial or financial relations satisfy the cross-border test if:


(a) the conditions meet the overseas requirement in the following table for either or both of the entities; or


(b) the conditions operate in connection with a *business that the entity carries on in an *area covered by an international tax sharing treaty.


Overseas requirement
Item Column 1
The conditions meet the overseas requirement for this type of entity:
Column 2
if:
1 any of the following:
(a) an Australian resident;
(b) a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 ;
(c) a partnership in which all of the partners are, directly or indirectly through one or more interposed partnerships, Australian residents or resident trust estates
the conditions operate at or through an *overseas permanent establishment of the entity.
2 an entity not covered by column 1 of item 1 the conditions do not operate solely at or through an *Australian permanent establishment of the entity.

815-120(4)  
For the purposes of the table in subsection (3), treat any entity that is an Australian resident as not being an Australian resident if:


(a) the entity is also a resident in a country that has entered into an *international tax agreement with Australia containing a *residence article; and


(b) under that residence article, the entity is taken, for the purposes of the agreement, to be a resident only of that other country. Nil amounts

815-120(5)  
For the purposes of this section and section 815-145 :


(a) treat an entity that has no taxable income for an income year as having a taxable income for the year of a nil amount; and


(b) treat an entity that has no loss of a particular *sort for an income year as having a loss of that sort for the year of a nil amount; and


(c) treat an entity that has no *tax offsets for an income year as having tax offsets for the year of a nil amount Meaning of residence article

815-120(6)  
A residence article is:


(a) Article 4 of the United Kingdom convention (within the meaning of the International Tax Agreements Act 1953 ); or


(b) a corresponding provision of another *international tax agreement.


 

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