Debt factoring and securitisation are finance arrangements entered into by an entity to obtain or provide immediate funds in exchange for disposing of certain financial assets. There is a transfer pricing risk in respect of these arrangements in how the value of the assets being transferred between international related parties is determined.
We are seeking to clarify the extent of these finance arrangements between Australian taxpayers and international related parties, the principal arm's length pricing method used to set or review consideration in respect of these arrangements and to ascertain the extent to which the taxpayer has transfer pricing documentation to support those dealings.
The terms 'debt factoring' and 'securitisation' have their ordinary meanings within the context of commercial practices.
Broadly, debt factoring is a finance arrangement whereby a business sells its accounts receivable to a third party (factor) at a discount to obtain working capital. The factor then collects the receivables from the business's customers. Debt factoring agreements can either be recourse or non-recourse arrangements. With recourse debt factoring, the factor does not assume the risk of bad debts and may seek recourse from the business for any uncollectible debts. With non-recourse debt factoring, the sale of the receivables essentially transfers ownership of the receivables to the factor, such that the factor obtains all of the rights and risks associated with the receivables.
Securitisation is a structured finance arrangement where an entity (the originator) sells a portfolio of financial assets to a special purpose vehicle. To acquire the assets from the originator, the special purpose vehicle issues tradable securities to fund the purchase. Investors purchase the securities, either through a private offering (for example, by targeting institutional investors) or on the open market. The originator will retain a beneficial interest in the performance of the securities and may also receive a service fee.
The dollar amounts or values asked for in this question are all based on your accounting records.
To complete this question, you need to:
- identify all the debt factoring arrangements and securitisation arrangements you entered into during the income year with international related parties
- in respect of any debt factoring arrangements
- determine the book value of the receivables sold/assigned to the factor for each of these arrangements
- calculate the total book value of the receivables for all these arrangements
- ascertain the consideration/payment amount received from the factor for the receivables, in respect of each debt factoring arrangement
- calculate the total amount of consideration received in respect of all these transactions
- specify the principal arm's length pricing method used to set or review consideration in respect of these arrangements
- specify the code for the percentage of dealings for which you have documentation. 'Percentage of dealings with documentation' refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation (as per TR 98/11) expressed as a percentage of total dollar value of transactions reported at this question.
- in respect of any securitisation arrangements
- determine the book value of the assets transferred for each of these arrangements
- calculate the total book value of the assets for all these arrangements
- ascertain the amount received from service fees, sales amounts and distributions from the special purpose vehicle arising from the transfer of assets in respect of each securitisation arrangement
- calculate the total amount of service fees, sales amounts and distributions from the special purpose vehicles arising from all these arrangements
- specify the principal arm's length pricing method used to set or review the income derived from these arrangements
- specify the code for the percentage of dealings for which you have documentation. 'Percentage of dealings with documentation' refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation (as per TR 98/11) expressed as a percentage of total dollar value of transactions reported at this question.
If you enter into any debt factoring or securitisation arrangements with international related parties during the income year, answer 'Yes' at label A of this question and complete the following labels.
Item 10a is completed as follows in relation to your international related party dealings involving debt factoring arrangements:
- At label C, write the total amount of the book value of the debt factoring arrangements.
- At label D, write the consideration received for entering into the debt factoring arrangements.
- At label E, write the Appendix 5 code for the principal arm's length pricing method used in the debt factoring arrangements.
- At label F, write the Appendix 9 code for the percentage of your international related party dealings involving debt factoring arrangements for which you have documentation. 'Percentage of dealings with documentation' refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation (as per TR 98/11) expressed as a percentage of total dollar value of transactions reported at this question.
Item 10b is completed as follows in relation to your international related party dealings involving securitisation arrangements:
- At label C, write the total amount of the book value of the securitisation arrangements.
- At label D, write the consideration received for entering into the securitisation arrangements.
- At label E, write the Appendix 5 code for the principal arm's length pricing method used in the securitisation arrangements.
- At label F, write the Appendix 9 code for the percentage of your international related party dealings involving securitisation arrangements for which you have documentation. 'Percentage of dealings with documentation' refers to the aggregate dollar amount of transactions reported at this question for which you have relevant documentation (as per TR 98/11) expressed as a percentage of total dollar value of transactions reported at this question.
For the list of:
- main pricing methodology codes, see Appendix 5
- percentage of dealings with documentation codes, see Appendix 9.
Example
During the income year an Australian taxpayer had debt factoring or securitisation arrangements with the following book values and amounts of consideration received.
Country |
Related party |
Arrangement type |
Book value of assets |
Consideration received |
Pricing methodology code |
Australia |
Yes |
Securitisation |
100,000,000 |
3,100,000 |
1 |
Cayman Islands |
Yes |
Debt factoring |
9,000,000 |
8,460,000 |
12 |
Jersey |
No |
Securitisation |
200,000,000 |
6,250,000 |
na |
Singapore |
Yes |
Securitisation |
100,000,000 |
2,800,000 |
1 |
Spain |
Yes |
Debt factoring |
17,000,000 |
16,065,000 |
1 |
United Kingdom |
No |
Securitisation |
150,000,000 |
4,500,000 |
na |
United States |
No |
Debt factoring |
15,000,000 |
14,100,000 |
na |
United States |
Yes |
Securitisation |
150,000,000 |
4,600,000 |
1 |
The Australian taxpayer extracts the relevant data from the information above. The taxpayer has documentation for 100% of the transactions.
Arrangement type |
Book value of assets |
Consideration received |
Pricing methodology code |
Percentage of documentation |
Debt factoring |
26,000,000 |
24,525,000 |
1 |
6 |
Securitisation |
250,000,000 |
7,400,000 |
1 |
6 |
In completing this question the Australian taxpayer will disregard the:
- securitisation arrangement undertaken with a related Australian based entity, as the arrangement is not a cross border transaction
- securitisation arrangements undertaken with entities located in Jersey and the United Kingdom, as the entities are not related to the taxpayer
- debt factoring arrangement undertaken with the entity located in the United States, as the entity is not related to the taxpayer.
With this information the Australian taxpayer completes question 10 as follows: