The Australian Taxation Office (ATO) on December 18 issued final guidance outlining its compliance approach to related party financing arrangements.
Practical Compliance Guideline 2017/4, (PCG 2017/4) sets out the features and attributes of related party financing arrangements that the ATO will use to place taxpayers into risk categories, ranging from a low-risk green zone to a very high-risk red zone, and the consequences of such placement.
If a related party financing arrangement is rated as low risk, the ATO will generally not apply compliance resources to review the taxation outcomes other than to fact check the appropriate risk rating. If, on the other hand, a related party financing arrangement falls outside the low risk category, taxpayers can expect greater scrutiny from Australian tax authorities, the ATO said.
The guidance finalizes proposed rules issued last May.
It also follows the ATO’s landmark win in Full Federal Court in Chevron, a transfer pricing case involving the appropriate arm’s length interest rate for a Chevron group intercompany loan. Chevron has since announced it will not appeal its loss to the High Court.