The Australian Taxation Office (ATO) on November 12 released a final taxation ruling which sets out the circumstances under which a taxpayer must disregard actual transactions with a related party and instead use hypothetical arm’s length conditions to determine income and withholding tax.
The ruling interprets section 815-130 of the Income Tax Assessment Act 1997, which applies to tax years beginning on or after June 29, 2013. The ruling also addresses section 815-130’s interaction with Subdivision 815-B and the OECD transfer pricing guidelines. A draft taxation ruling on the topic was released in March.
In a November 13 analysis of the ruling, KPMG states that while the language of the final guidance differs from the March draft, it differs little in effect. The final guidance, like the draft, is at odds with OECD transfer pricing guidelines because it does not provide for reconstruction of transactions only in exceptional circumstances, the firm asserts.
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