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Taxation Determination

TD 93/211

Income tax: Offshore Banking Units (OBU) - where an OBU provides the services of its employees to a non-resident subsidiary to assist the subsidiary in advising offshore clients on offshore financial matters, can fees charged by the OBU to the subsidiary qualify as assessable OB income?

  • Please note that the PDF version is the authorised consolidated version of this ruling and amending notices.
    This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953 , is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).

Note: This is a consolidated version of this document. Refer to the Legal Database (www.ato.gov.au/law) to check its currency and to view the details of all changes.

1. Yes. Fees charged at arm's length can be booked as assessable OB income as they constitute advisory activities in terms of subsection 121D(7) of the Income Tax Assessment Act 1936. However, an appropriate adjustment must be made for any deduction claim for employment related expenses. That is, the expenses would either constitute an exclusive OB deduction or a general OB deduction in accordance with section 121EF.

Example.

An OBU[1] makes available the services of an employee to an offshore subsidiary to assist in advising offshore clients. The OBU charges the subsidiary a fee of $5 000 based on a rate per hour, plus a success fee of $15 000.
The assessable OB income would include fee income of $20 000.
If the records of the OBU clearly identify the employment related costs of providing the advice - for example, the number of hours worked on the activity, it would be entitled to claim an exclusive OB deduction. However, if the records do not clearly identify the actual costs the OBU must treat the expense as a general OB deduction calculated in accordance with the formula in subsection 121EF(4).

Commissioner of Taxation
28/10/93

Footnotes

The OBU regime is closed to new entrants from 14 September 2021. The concessional tax treatment for existing OBUs in respect of offshore activities will be removed effective from the 2023-24 income year. Interest payments paid on or after 1 January 2024 on offshore borrowings by OBUs will no longer be exempt from withholding tax.

Previously issued as Draft TD 93/D206

References

ATO references:
NO NAT 93/3707-5

ISSN 1038 - 8982

Related Rulings/Determinations:

TD 93/214

Subject References:
Offshore banking,
OBUs,
advisory activity

Legislative References:
ITAA 121D(7)

TD 93/211 history
  Date: Version: Change:
  28 October 1993 Original ruling  
You are here 13 October 2021 Consolidated ruling Addendum

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