ATO increases focus on international related party
The Australian Taxation Office (ATO) is continuing to focus on international related party financing arrangements, related transactions and the compliance obligations associated with such transactions.
In 2017, the ATO released Practical Compliance Guideline PCG 2017/4 (PCG) which outlines the ATO compliance approach to taxation issues associated with cross-border related party financing arrangements.
The PCG provides a risk framework to allow taxpayers to assess the level of risk across six zones. White, green, blue, yellow, amber and red zones indicate the increasing level of risk (and compliance action) that the ATO considers applies to the particular arrangements.
Taxpayers need to regularly review the level of risk of their arrangements and take action to reduce it. The PCG outlines various factors and a scorecard to assess the level of risk.
Risk factors include:
Pricing (interest rate and costs)
Level of collateral
Currency of debt
Tax rate in lender jurisdiction
Level of evidence supporting arm’s length terms
The following table, copied from the PCG identifies the potential ATO actions for each level of risk:
The PCG has been updated on a yearly basis. In December 2020, Schedule 3 was added to include consideration of interest-free loans between related parties.
On 1 February 2021, the ATO announced its International Risk for Private Groups program will focus on non-resident withholding tax on interest expenses. This campaign will focus on taxpayer compliance with:
Withholding tax (generally 10%) from interest paid to international parties and remitting it to the ATO
Lodging a PAYG withholding from interest, dividend and royalty payments paid to non-resident annual report (PAYG annual report)
Any taxpayers with related party financing should take action to review their arrangements, assess the level of risk and take appropriate action.
Should you require further information, or advice in relation to these matters, please contact your usual Mazars advisor, or alternatively one of our tax specialists via phone or the form below.
Author: Jamie Towers
All rights reserved. This publication in whole or in part may not be reproduced, distributed or used in any manner whatsoever without the express prior and written consent of the Mazars, except for the use of brief quotations in the press, in social media or in another communication tool, as long as Mazars and the source of the publication are duly mentioned. In all cases, Mazars’ intellectual property rights are protected and the Mazars Group shall not be liable for any use of this publication by third parties, either with or without Mazars’ prior authorisation. Also please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice. Content is accurate as at the date published.
The Australian Taxation Office (ATO) is renewing their focus on privately owned and wealthy groups under their four year Next 5,000 tax performance program with the recent commencement of new reviews under this program. One of the areas of interest for the ATO under the review is formal tax governance, which is not common for private groups. We encourage all wealthy private groups to understand...
Businesses and individuals are really feeling the challenges as a result of COVID-19 so it will be a relief to some with the extensions that the Australian Taxation Office (ATO) has released around the JobKeeper stimulus and ATO lodgement deadlines.