background image

Australia Updates Guideline on Risk Assessment of Related Party Financing Arrangements — Orbitax Tax News & Alerts

On 13 June 2018, the Australian Taxation Office (ATO) published an updated version of Practical Compliance Guideline (PCG 2017/D4), which explains the ATO compliance approach to taxation issues associated with cross-border related party financing arrangements and related transactions. The update includes the addition of paragraphs 93A and 93B to Schedule 1: Related party debt funding. These additions are in relation to the motivational risk scoring table indicator, Leverage of the Borrower, which is used along with other indicators for making a risk assessment of an arrangement:

93A. If you are a financial entity for thin capitalisation purposes, you may substitute the 60% leverage benchmark in this indicator for your pre-asset revaluation safe harbour gearing ratio. For example, an inward investing financial entity that has a pre-asset revaluation safe harbour gearing ratio of 78% may replace the 60% leverage benchmark in this indicator with their safe harbour gearing ratio.

93B. Pre-asset revaluation safe harbour gearing ratio defined as:

Pre-asset revaluation safe harbour debt amount / Total Australian assets

Where:

Pre-asset revaluation Safe harbour debt amount = Safe harbour debt amount for Division 820 purposes before accounting for any asset revaluation that were conducted for thin capitalisation purpose only; in AUD equivalent.