Changes to the transfer pricing rules and Part IVA
anti-avoidance regimes in the Tax Laws Amendment (Countering Tax
Avoidance and Multinational Profit Shifting) Bill 2013 have just
been passed by the Senate.
What will you need to watch out for with the transfer pricing
This new power allows the Commissioner to have regard to the
economic substance of a transaction, and potentially construct a
hypothetical transaction. As part of this, he can assert that
parties may not have entered into a particular transaction had they
acted as independent parties dealing at arm's length with each
other. The taxpayer must then disprove this. In addition, without
proper documentation, as defined by the Act, the taxpayer will not
be able to reasonably argue its position.
It is not clear when it is appropriate to apply the "would
have" limb rather than the "might reasonably be
The Bill's explanatory material indicates that the
"would have" limb might generally apply where the
particular scheme has no other commercial or economic consequences
other than tax (in practice, this might mean particularly
aggressive schemes which result in deductions being available for
no economic loss). It also indicates that the "might
reasonably be expected" limb will apply where there were real
commercial or economic consequences arising from the scheme so the
relevant events need to be "reconstructed" to reveal the
tax that was avoided.
Unfortunately, these concepts do not appear in the Bill itself
and thus the application of these limbs will only become clear in
When do the transfer pricing and Part IVA changes come into
The transfer pricing changes will apply to income years
commencing on or after the earlier of 1 July 2013 and the day the
Bill receives Royal Assent (which should be very soon). In respect
of withholding tax, the rules will apply in relation to income
derived, or taken to be derived, in income years commencing on or
after the earlier of the above two dates.
The Part IVA changes will apply to schemes that commenced to be
carried out on or after 16 November 2012 (the day the exposure
draft was released).
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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