This question collects information about your dealings of a financial nature with international related parties other than those covered in questions 9 and 10. Your dealings of a financial nature include:
- borrowings or loans
- foreign currency trade related financial liabilities or receivables resulting in assessable foreign exchange gains or deductible foreign exchange losses during the income year, for example
- foreign currency intercompany liabilities for amounts payable by you for purchase of commodities from international related parties which are satisfied during the income year
- foreign currency intercompany receivables for amounts payable to you for provision of services to international related parties which are satisfied during the income year.
The dollar amounts or values asked for in this question are all based on your accounting records.
Loans and interest
Loan arrangement has its ordinary meaning within the context of commercial and accounting practices. In general terms, a loan arrangement is defined as a contract whereby the lender pays a sum of money in consideration of a promise by the borrower to repay the money at some time in the future (and this promise may or may not include the promise to repay interest on the money borrowed). Any amounts that are not a loan but which would be considered to be a debt interest for the purposes of Division 974 of the ITAA 1997 should be included here. This will include redeemable preference shares or promissory notes which satisfy the conditions for a debt interest under subsection 974-20 of the ITAA 1997.
Financial arrangements that are economically in substance a loan arrangement would be regarded as a loan for the purposes of this question, for example, securities arrangements where the collateral is cash, sale and buyback arrangements to be settled in cash, or repurchase agreements (repos) to be settled in cash.
Whether a financial arrangement economically constitutes a loan arrangement is a matter to be decided based on the facts and circumstances of each arrangement.
For arrangements that are economically in substance loans, for the purposes of completing this question, treat:
- the cash collateral or cash settlement amount as the loan amount
- any fees paid or received in respect of those arrangements as interest
- any gain made or loss incurred in respect of those arrangements as interest.
For more information about the concept of what constitutes a loan, see:
- TR 92/11 Income tax: application of the Division 13 transfer pricing provisions to loan arrangements and credit balances
- TR 2002/16 Income tax: the taxation consequences for taxpayers issuing certain stapled securities.
We recommend that you seek appropriate advice or guidance in light of the particular facts and circumstances of your case.
We expect interest to be the principal expense incurred and revenue earned in respect of your financial arrangements in the nature of loans, and this would be included at item 11c. However, any other expenses and losses or revenue and gains associated with these arrangements, such as borrowing costs should be included at item 11f.
Do not show at this question principal and principal repayment amounts.
To complete this part of the question:
- identify all your international related party dealings of a financial nature in the nature of loans
- divide those loan arrangements into
- interest bearing loans
- interest free loans
- calculate the average balance of each of those loan arrangements by
- adding up the loan balance amount at the start of the year and the loan balance amounts at the end of each quarter
- dividing the result by five
- in respect of interest bearing loans, determine the amount of interest expenditure or interest revenue in respect of these loans.
If you had any financial arrangements in the nature of loans with international related parties during the income year, answer Yes at A item 11 and complete the following.
If an amount to be written at this item is not relevant for any of your international related party financial arrangements in the nature of loans, leave the label blank.
For item 11a:
- At I, write the average balance of interest bearing loans in relation to amounts borrowed from international related parties.
- At K, write the average balance of interest free loans in relation to amounts borrowed from international related parties.
For item 11b:
- At I, write the average balance of interest bearing loans in relation to amounts loaned to international related parties.
- At K, write the average balance of interest free loans in relation to amounts loaned to international related parties.
For item 11c:
- At C, write the total interest expenditure in respect of the interest bearing loans borrowed from international related parties.
- At D, write the total interest revenue in respect of the interest bearing loans to international related parties.
- At F, write the Appendix 9 code for the percentage of the international related party interest you have shown for which you have documentation. If you applied one of the simplified record-keeping options in PCG 2017/2 Simplified transfer pricing record keeping options for the interest you have shown, write code 7 at F.
Example
During the income year, the Australian taxpayer (a 30 June balancer) had a borrowing from international related parties and loans to international related parties. The Australian taxpayer has divided these borrowings and loans into interest-bearing and non-interest-bearing borrowings and loans and calculated the average balance of each of the borrowing and loan arrangements. (They did this by adding up the borrowing and loan balance amounts at the start of the year and at the end of each quarter and dividing the result by five.)
For example, the taxpayer has a borrowing from a related United States entity. The borrowing is interest bearing and the balances of the borrowing are as follows:
The table below shows the borrowing balances taken out by the taxpayer from a related United States entity throughout 2017–18.
Date |
Borrowing balances |
|---|---|
01/07/17 |
$3,000,000 |
30/09/17 |
$7,000,000 |
31/12/17 |
$5,000,000 |
31/03/18 |
$3,000,000 |
30/06/18 |
$3,000,000 |
$21,000,000 divided by 5 = $4,200,000
The table below shows all the average loan balances for the taxpayer’s borrowings and loans for its financial arrangements in the nature of loans with international related parties.
Country |
Related entity |
Loan type |
Interest bearing loans – Average loan balance |
Interest bearing loans – Interest |
Interest free loans – Average loan balance |
|---|---|---|---|---|---|
United States |
Entity |
Borrowed |
4,200,000 |
31,500 |
0 |
Singapore |
Entity |
Loaned |
0 |
0 |
1,800,000 |
Singapore |
Entity |
Loaned |
2,200,000 |
16,500 |
1,800,000 |
United States |
Entity |
Borrowed |
3,200,000 |
24,000 |
4,000,000 |
Japan |
Entity |
Loaned |
0 |
0 |
2,900,000 |
Hong Kong |
Entity |
Borrowed |
3,300,000 |
24,750 |
0 |
United States |
Entity |
Borrowed |
2,800,000 |
21,000 |
3,500,000 |
Vietnam |
Entity |
Loaned |
1,650,000 |
12,375 |
0 |
Hong Kong |
Entity |
Borrowed |
2,800,000 |
21,000 |
0 |
Singapore |
Entity |
Borrowed |
0 |
0 |
1,900,000 |
United States |
Entity |
Borrowed |
2,800,000 |
21,000 |
0 |
The Australian taxpayer extracts the relevant data from the information above.
Related entity |
Interest bearing loans – Total average loan balances |
Interest bearing loans – Total interest |
Interest free loans – Total average loan balances |
|---|---|---|---|
Entity |
4,200,000 |
31,500 |
0 |
Entity |
3,200,000 |
24,000 |
4,000,000 |
Entity |
6,100,000 |
45,750 |
3,500,000 |
Entity |
5,600,000 |
42,000 |
1,900,000 |
Total (average balances) |
19,100,000 |
0 |
9,400,000 |
Total interest |
0 |
143,250 |
0 |
Related entity |
Interest bearing loans – Total average loan balances |
Interest bearing loans – Total interest |
Interest free loans – Total average loan balances |
|---|---|---|---|
Entity |
0 |
0 |
1,800,000 |
Entity |
2,200,000 |
16,500 |
1,800,000 |
Entity |
0 |
0 |
2,900,000 |
Entity |
1,650,000 |
12,375 |
0 |
Total (average balances) |
3,850,000 |
0 |
6,500,000 |
Total interest |
0 |
28,875 |
0 |
With this information the Australian taxpayer completes question 11 as follows:
Guarantees
The expenditure and revenue for guarantees include fees associated with a contract or arrangement under which a party agrees to perform an obligation or discharge a liability of another entity should that entity fail to do so.
Insurance and reinsurance
This part of question 11 asks you to provide details of your expenses incurred and revenue earned or derived in relation to your insurance and reinsurance contracts with international related parties during the income year.
Insurance is a means by which an entity can protect itself with an insurance company against the risk of loss. Insurance is commonly categorised into general insurance, life insurance and health insurance.
- expenditure incurred, or
- revenue earned or derived
for insurance services with international related parties, including activities associated with the management of insurance contracts (predominantly undertaken through intermediaries), should be shown at question 8c.
Reinsurance is a means by which an insurance company can protect itself with other insurance companies against the risk of losses. Therefore, the question relating to reinsurance is applicable only to insurance companies.
- expenditure incurred or
- revenue earned or derived
for reinsurance services with international related parties, including activities associated with the management of reinsurance contracts (predominantly undertaken through intermediaries), should be shown at question 8d.
The amounts reported for this question should include the expenditure and revenue that would qualify as expenditure or revenue in relation to insurance or reinsurance contracts under relevant Australian accounting standards or comparable foreign accounting standards (for example, premium revenue, claim recoveries, commissions received from reinsurers). At the time of this publication, the three key Australian accounting standards relevant to the recognition of expenditure and revenue in relation to insurance or reinsurance include AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts. As the dollar amounts in this question are based on your accounting records, you should include all of your reinsurance expenditure and revenue in terms of section 148(1) of the ITAA 1936.
If you engaged an intermediary (for example, a broker) in arranging your insurance or reinsurance contracts, even if the intermediary was acting as an independent agent, the intermediary is considered to be acting on your behalf. Therefore, the transactions undertaken by the intermediary on your behalf should be included in your answer to this question.
For each of your financial dealings with international related parties of a type covered by item 11d Guarantees, item 11e Insurance or item 11f Reinsurance, complete the labels for the item for that financial dealing type as follows:
- At C, write the total expenditure you incurred for the financial dealing type.
- At D, write the total revenue you earned or derived for the financial dealing type.
- At E, write the Appendix 5 code for the main pricing methodology you used to set or review consideration in respect of the financial dealing type.
- At F, write the Appendix 9 code for the percentage of your international related party dealings involving the financial dealing type 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 expressed as a percentage of total dollar value of transactions reported at this question.
Foreign exchange gains and foreign exchange losses
Item 11g asks you to provide details of foreign exchange gains you have returned and foreign exchange losses you have deducted for Australian income tax purposes in relation to dealings with international related parties.
This includes foreign exchange gains you have returned and foreign exchange losses you have deducted during the income year for trade related financial liabilities or receivables, for example:
- foreign currency intercompany liabilities for amounts payable by you for purchase of commodities from international related parties which are satisfied during the income year
- foreign currency intercompany receivables for amounts payable to you for provision of services to international related parties which are satisfied during the income year.
If you have foreign exchange gains or foreign exchange losses from foreign currency deferred payment arrangements for certain kinds of transactions on revenue account covered by the special Year 2 local file reporting rules for foreign exchange gains or foreign exchange losses, you can chose to rely on those rules for the purposes of completing item 11g. These rules mean you do not need to show the amount of foreign exchange gains or foreign exchange losses from regular short term foreign currency deferred payment arrangements meeting the requirements in the rules. As a practical matter these special rules are expected to only affect amounts you would otherwise have shown for the following transaction types in Appendix 12:
- Code 3 – IRP trade related liabilities
- Code 4 – IRP trade related receivables.
If these special Year 2 local file reporting rules for foreign exchange gains or foreign exchange losses apply to you, and you choose to use them, the below instructions for item 11g should be treated as modified for amounts you would otherwise have shown for the relevant transactions. This means you may not need to include, in the amounts you show at item 11g, foreign exchange gains or foreign exchange losses from qualifying regular short term foreign currency deferred payment arrangements.
If you are an entity covered by the taxation of financial arrangements provisions (TOFA) in Division 230 of the ITAA 1997, your assessable foreign exchange gains and deductible foreign exchange losses for financial arrangements covered by TOFA are determined under Division 230 and Subdivision 775-F of the ITAA 1997, as applicable. For more guidance on entities covered by TOFA and the operation of TOFA, refer to the instructions for Question 20 and Guide to the taxation of financial arrangements (TOFA).
In other scenarios assessable foreign exchange gains and deductible foreign exchange losses are determined under the provisions in Subdivisions 775-B to 775-E and Subdivisions 960-C and 960-D of the ITAA 1997.
Foreign exchange gain refers to a foreign exchange gain attributable to fluctuations in a currency exchange rate you make as a result of a forex realisation event under the provisions.
Foreign exchange loss refers to a foreign exchange loss attributable to fluctuations in a currency exchange rate you make as a result of a forex realisation event under the provisions.
Under Subdivision 775-B of the ITAA 1997 there are five main types of forex realisation events:
- forex realisation event 1 happens if you dispose of foreign currency, or a right to receive foreign currency, to another entity
- forex realisation event 2 happens if you cease to have a right to receive foreign currency (other than because you disposed of the right to another entity)
- forex realisation event 3 happens if you cease to have an obligation to receive foreign currency
- forex realisation event 4 happens if you cease to have an obligation to pay foreign currency
- forex realisation event 5 happens if you cease to have a right to pay foreign currency.
There are also special rules:
- under Subdivision 775-C of the ITAA 1997, for rollover for facility agreements and special rules for securities issued under the facility agreements
- under Subdivision 775-D of the ITAA 1997, providing an election to disregard forex realisation events 2 and 4 for qualifying forex accounts not exceeding $250,000
- under Subdivision 775-E of the ITAA 1997, providing a choice to use the retranslation method for qualifying forex accounts instead of forex realisation events 2 and 4.
For more information about foreign exchange gains and losses, see Foreign exchange gains and losses.
To complete this question:
- identify all foreign exchange gains you have returned and foreign exchange losses you have deducted in relation to dealings with international related parties
- total the dollar value of foreign exchange gains you have returned and foreign exchange losses you have deducted for each Appendix 12 transaction type
- determine the three Appendix 12 transaction types for which you have the highest total dollar value of foreign exchange gains returned and foreign exchange losses deducted in relation to dealings with international related parties
- in respect of the three transaction types for which you have the highest dollar value of foreign exchange gains returned and foreign exchange losses deducted in relation to dealings with international related parties, then group the foreign exchange gains returned and foreign exchange loss deducted in each of the transaction types according to the Appendix 13 currency codes
- total the dollar value of foreign exchange gains you have returned and foreign exchange losses you have deducted for each currency code
- determine the three Appendix 13 currencies with the highest total dollar value of foreign exchange gains returned and foreign exchange losses deducted for each of the top three transaction types
- total the dollar value of foreign exchange gains you have returned in relation to dealings with international related parties for all other currencies that are not included at Appendix 13 currency codes
- total the dollar value of foreign exchange losses you have deducted in relation to dealings with international related parties for all other currencies, if any, not included at Appendix 13 currency codes.
At B, H and N, write the Appendix 12 codes for the three transaction types with the highest dollar value of foreign exchange gains returned and foreign exchange losses deducted in relation to dealings with international related parties. Write these codes in descending order of total dollar value.
At C, I and O, write the Appendix 13 currency codes for the three currencies for which you have the highest dollar value of foreign exchange gains returned and foreign exchange losses deducted in relation to dealings with international related parties for each of the top three transaction types you have identified. Write these codes in descending order of total dollar value.
At D, J and P, write the total amount of foreign exchange losses deducted in respect of each of the top three Appendix 13 currencies you have identified in relation to each of the top three transaction types identified.
At E, K and Q, write the total amount of foreign exchange gains returned in respect of each of the top three Appendix 13 currencies you have identified in relation to each of the top three transaction types identified.
At F, L and R, write the total of foreign exchange losses deducted in respect of all other currencies not included in Appendix 13 currency codes for each of the top three transaction types identified.
At G, M and S, write the total of foreign exchange losses deducted in respect of all other currencies that are not included in Appendix 13 currency codes for each of the top three transaction types identified.
All amounts shown at this question are in Australian dollars.
Example
During the income year an Australian taxpayer has returned the following foreign exchange (FX) gains and deducted the following FX losses in relation to dealings with international related parties.
Foreign exchange gains and deducted lossesTransaction type |
Currency |
Currency code |
FX losses deducted |
FX gains returned |
Total dollar value |
|---|---|---|---|---|---|
IRP ordinary borrowings |
US Dollar |
USD |
845,000 |
150,000 |
995,000 |
IRP ordinary loans |
New Zealand Dollar |
NZD |
450,000 |
100,000 |
550,000 |
IRP ordinary borrowings |
Euro |
EUR |
0 |
450,000 |
450,000 |
IRP ordinary loans |
Canadian Dollar |
CAD |
200,000 |
0 |
200,000 |
IRP other debt interests acquired |
British Pound |
GBP |
0 |
650,000 |
650,000 |
IRP other debt interests acquired |
Singapore Dollar |
SGD |
1,200,000 |
150,000 |
1,350,000 |
IRP ordinary borrowings |
British Pound |
GBP |
100,000 |
1,500,000 |
1,600,000 |
IRP other debt interests acquired |
New Zealand Dollar |
NZD |
600,000 |
150,000 |
750,000 |
Other IRP assets or receivables |
US Dollar |
USD |
250,000 |
50,000 |
300,000 |
IRP ordinary borrowings |
Mexican Peso |
na (not included at Appendix 13 currency codes) |
0 |
20,000 |
20,000 |
The taxpayer extracts the relevant data from the information above.
Transaction type: IRP ordinary borrowingsCurrency |
Currency code |
FX losses deducted |
FX gains returned |
Total dollar value |
|---|---|---|---|---|
British Pound |
GBP |
100,000 |
1,500,000 |
1,600,000 |
US Dollar |
USD |
845,000 |
150,000 |
995,000 |
Euro |
EUR |
0 |
450,000 |
450,000 |
Mexican Peso |
na (not included at Appendix 13 currency codes) |
0 |
20,000 |
20,000 |
Total |
na |
945,000 |
2,120,000 |
3,065,000 |
Currency |
Currency code |
FX losses deducted |
FX gains returned |
Total dollar value |
|---|---|---|---|---|
Singapore Dollar |
SGD |
1,200,000 |
150,000 |
1,350,000 |
New Zealand Dollar |
NZD |
600,000 |
150,000 |
750,000 |
British Pound |
GBP |
0 |
650,000 |
650,000 |
Total |
na |
1,800,000 |
950,000 |
2,750,000 |
Currency |
Currency code |
FX losses deducted |
FX gains returned |
Total dollar value |
|---|---|---|---|---|
New Zealand Dollar |
NZD |
450,000 |
100,000 |
550,000 |
Canadian Dollar |
CAD |
200,000 |
0 |
200,000 |
Total |
na |
650,000 |
100,000 |
750,000 |
Currency |
Currency code |
FX losses deducted |
FX gains returned |
Total dollar value |
|---|---|---|---|---|
US Dollar |
USD |
250,000 |
50,000 |
300,000 |
Total |
na |
250,000 |
50,000 |
300,000 |
With this information the taxpayer completes question 11g as follows:
Other financial dealings
Item 11h asks you to provide details of your expenses and losses incurred or revenue and gains earned in relation to your other kinds of financial dealings with international related parties during the income year. At item 11h Other financial dealings report only amounts for financial dealings of a kind that are not covered by at item 9, 10, 11a, 11b, 11c, 11d, 11e and 11g.
Other financial dealings are dealings in financial instruments that would qualify as financial assets or financial liabilities under relevant Australian accounting standards or comparable foreign accounting standards but excludes financial instruments that would be treated as a derivative for the purpose of completing question 9. At the time of this publication, the two key Australian accounting standards relevant to this question include AASB 132 Financial Instruments: Presentation and AASB 139 Financial Instruments: Recognition and Measurement. You do not need to take into account the debt and equity provisions in Division 974 of the ITAA 1997.
The amounts reported at this question may be reported in the financial statements as revenue and gains or expenses and losses, depending on the accounting treatment of your relevant financial assets and financial liabilities. This includes amounts relating to hedging items that are classified in the financial statements as financial assets or financial liabilities. Therefore for the purposes of this question, the terms:
- expenditure and losses are interchangeable
- revenue and gains are interchangeable.
For each of your financial dealings of any other kind with international related parties, complete item 11h as follows:
- At C, write the total expenditure you incurred for the other kinds of financial dealings.
- At D, write the total revenue you earned or derived for the other kinds of financial dealings.
- At E, write the Appendix 5 code for the main pricing methodology you used to set or review consideration in respect of the other kinds of financial dealings.
- At F, write the Appendix 9 code for the percentage of your international related party dealings involving the other kinds of financial 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 expressed as a percentage of total dollar value of transactions reported at this question. - At H, write a description of the other kinds of financial dealings. The description should be limited to 200 characters.