The ATO Has Released PS LA 2015/3 on Recharacterization

By Robert Robillard - 12 March 2015

This blogpost originally appeared on rbrt.ca.

The Australian Taxation Office has recently released PS LA 2015/3 on recharacterization matters for transfer pricing purposes. Paragraphs 9-12 explain:

“9. In considering whether any of the exceptions to the basic rule in section 815-130 may apply to an entity in a particular instance, ATO personnel must:

  • At first instance, notify the Internationals section of the Public Groups and International business line (PG&I) of the existence of the matter for tracking of such cases.· Engage relevant technical expert(s) as early as possible. In the case of the PG&I, the relevant technical experts in the Technical Leadership Group or Internationals section of PG&I.
  • In the case of the Private Groups and High Wealth Individuals business line (PGH), the relevant technical experts in the Technical Excellence Services stream of PGH or those mentioned above for PG&I.
  • Raise the matter with the taxpayer and give them the opportunity to clarify the facts and address any concerns that the ATO may have.

10. Engaging relevant technical experts as early as possible can assist ATO personnel in:

  • · ensuring that the facts obtained are probative of the elements of the exceptions to the basic rule in section 815-130, and
  • facilitating consideration of the matters so as not to cause delays.

11. Prior to the adoption of any view by the ATO that one of the exceptions should apply in relation to an entity’s actual commercial or financial relations, ATO personnel must seek approval to do so from a relevant Assistant Commissioner within their business line. For example, this means:

  • an Assistant Commissioner within the International section of PG&I for cases dealt with in PG&I
  • an Assistant Commissioner in the Technical Excellence Services or Engagement and Assurance Services streams of the PGH for cases dealt with in PGH, or
  • a Senior Tax Counsel in the Tax Counsel Network (TCN) in instances where the case has been referred to TCN in accordance with PS LA 2012/1 Management of high risk technical issues and engagement of officers in the Tax Counsel Network and the Enterprise Risk Management Framework.

12. Prior to any escalation to an SES officer for approval, ATO personnel must also:

  • Engage relevant technical experts within their business line as early as possible to assist in ascertaining whether the conditions for the application of any of the exceptions are satisfied and in facilitating the approval process.
  • Consistent with paragraph 9 of this practice statement, have raised the issue with the taxpayer and given them the opportunity to clarify the facts and address any concerns that the ATO may have.”

See the complete Practice Statement Law Administration PS LA 2015/3 titled Approval process for the application of subsections 815-130(2) to 815-130(4) of the Income Tax Assessment Act 1997 (ITAA 1997) here.

In the end, Australia’s PS LA 2015/3 is not really different from Canada’s TPM-13 – Referrals to the Transfer Pricing Review Committee available here.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Inc.
514-742-8086; robertrobillard “at” rbrt.ca
www.rbrt.ca

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