After Chevron: review tax risks of cross-border loans
By Ed Carr, Tax Writer, Wolters Kluwer Australia
The ATO is focusing on transfer pricing compliance by taxpayers with related-party cross-border financing arrangements. It has followed up a win in the Chevron transfer pricing case (Chevron Australia Holdings Pty Ltd v FC of T 2017 ATC 20-615) by issuing Draft Practical Compliance Guideline PCG 2017/D4. Under the draft PCG, taxpayers will be expected to self-assess the transfer pricing risks of their financing arrangements with non-resident related parties.
In the Chevron case, the Australian subsidiary of the oil and gas giant was denied tax deductions, under the transfer pricing provisions, for interest paid to a related US company. The court found that the interest Chevron had paid under the in-house lending arrangements was more than would have been paid under a similar arrangement between independent parties dealing at arm’s length. It is no coincidence that the example in the draft PCG illustrates the risk assessment process for an Australian subsidiary of a US oil and gas company.
The ATO states that its draft risk assessment framework has been developed with the expectation that the cost of related party cross-border debt should “align with the costs that could be achieved, on an arm’s length basis, by the parent of the global group to which the borrower and lender both belong”.
For the Risk Assesment checklist and more, read the full article on Wolters Kluwer Central.
To hear directly from the senior lawyers involved in this important transfer pricing case, view the webinar recording.