[4000] Royalties and software
Title
Final Taxation Ruling
Income tax: royalties – character of receipts in respect of software
Purpose
Advice on the development and marketing of software was previously provided in Taxation Ruling TR 93/12 Income tax: computer software (now withdrawn). There is a need to provide updated guidance on modern forms of software distribution, including digital channels and cloud computing. This Ruling will provide the Commissioner’s view on the circumstances in which amounts in respect of the licensing and distribution of software will be royalties as defined in subsection 6(1) of the Income Tax Assessment Act 1936.
Expected completion
In November 2024, the High Court granted special leave to appeal against PepsiCo, Inc v Commissioner of Taxation [2024] FCAFC 86. The ATO has deferred finalisation of the draft ruling pending the High Court’s decision on the appeal. See ATO seeks special leave to appeal to the High Court in PepsiCo Inc v Commissioner of Taxation.
Comments
Draft Taxation Ruling TR 2021/D4 Income tax: royalties – character of receipts in respect of software published on 25 June 2021. Having regard to comments and submissions received in relation to TR 2021/D4, the Commissioner prepared a further draft Ruling. Draft Taxation Ruling TR 2024/D1 Income tax: royalties – character of payments in respect of software and intellectual property rights published on 17 January 2024. Comments period closed 1 March 2024 and all submissions are currently being considered.
Contact
IntangiblesArrangements@ato.gov.au
[4116] Thin capitalisation
Title
Multinational tax integrity – strengthening Australia’s interest limitation (thin capitalisation) rules
Purpose
On 8 April 2024, the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Act 2024 (the Act) received Royal Assent.
The ATO is proposing to provide guidance setting out the Commissioner’s views on, and approach to, key aspects of the new thin capitalisation and debt deduction creation rules contained in Schedule 2 of the Act.
Consultation on potential guidance topics, prioritisation and form closed on 30 April 2024. On 10 May 2024, we published a summary of PAG topics, outlining topics raised by stakeholders and how these will be prioritised.
The high-priority topics we intend to resource immediately are:
- restructures in response to the new law
- third party debt test – key concepts, and
- interaction of transfer pricing and the new thin capitalisation rules.
We continue to engage with stakeholders on the high-priority topics to develop specific public advice and guidance products. We encourage stakeholders to provide specific, practical examples that clearly demonstrate issues raised, including reference to the relevant provisions and analysis of their potential application.
Expected completion date
Consultation on potential guidance topics, prioritisation and form closed on 30 April 2024.
See below for expected publication dates of proposed public advice and guidance.
Contact
Stephen Dodshon, Public Groups
Erin Gordon, Office of the Chief Tax Counsel
For more information, see Consultation matter.
Title
Final Practical Compliance Guideline
Restructures and the new thin capitalisation and debt deduction creation rules
Purpose
The first priority topic is compliance guidance on the Commissioner’s application of Part IVA and the debt deduction creation rules' (DDCRs) specific anti-avoidance provision (section 820-423D of the Income Tax Assessment Act 1997) to certain restructures in response to the new law.
Expected completion date
To be advised
Comments
An update to Draft Practical Compliance Guideline PCG 2024/D3 Restructures and the thin capitalisation and debt deduction creation rules – ATO compliance approach published on 4 December 2024. Comments period closed on 7 February 2025.
Contact
Stephen Dodshon, Public Groups
Title
Final Taxation Ruling
Third party debt test
Purpose
The second priority topic is a public ruling on the third party debt test.
This guidance focuses on the qualifying third party debt conditions in subsection 820-427A(3) of the Income Tax Assessment Act 1997. This includes key conditions that debt interests issued by an entity must satisfy, such as recourse being only to Australian assets and the proceeds of the debt interest funding commercial activities in connection with Australia.
Expected completion date
To be advised
Comments
Draft Taxation Ruling TR 2024/D3 Income tax: aspects of the third party debt test in Subdivision 820-EAB of the Income Tax Assessment Act 1997 published on 4 December 2024. Comments period closed 7 February 2025.
Contact
Stephen Dodshon, Public Groups
Title
Draft Practical Compliance Guideline
Factors to consider when determining the amount of your cross-border related party finance arrangement
Purpose
The third priority topic is practical guidance in relation to the arm’s length amount of a debt interest for transfer pricing purposes (Subdivision 815 B of the Income Tax Assessment Act 1997). This guidance will focus on broad-based principles for taxpayers to consider in determining and testing the amount of their cross-border related party finance arrangement. It also outlines specific features of financing arrangements and transfer pricing analysis which we would view as being cause for concern.
This public advice and guidance is currently under development.
Expected completion date
Early 2025
Contact
Nick Trotman, Public Groups
[4148] Public Country-by-Country reporting transparency measure and exemption discretions [updated]
Title
Draft Law Administration Practice Statement
Public Country-by-Country reporting exemptions
Purpose
This draft Practice Statement will outline the Commissioner’s approach to Public Country-by-Country (CBC) reporting exemptions. The guidance will include:
- the process for submitting applications
- information that should be provided with applications, and
- considerations relevant to the exercise of the discretion sought.
Expected completion date
Mid 2025
Comments
Public CBC parent entities are required to lodge a Public CBC report for reporting periods commencing on and after 1 July 2024 unless they have been granted an exemption by the Commissioner.
This Practice Statement will provide staff instruction on exercising these powers and provide guidance to applicants on seeking an exemption.
This draft Practice Statement aligns with the expectation expressed in paragraph 4.24 of the Explanatory Memorandum to the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024.
Contact
Chris Bailey, Public Groups
Phone: (02) 6216 6581
[4154] Pillar Two lodgment obligations and the ATO’s transitional approach [new]
Title
Global and domestic minimum tax – the implementation of Pillar Two of the OECD/G20 Two-Pillar Solution for multinational businesses in Australia
Purpose
Australia has implemented the Global Anti-Base Erosion Model RulesExternal Link by introducing a global and domestic minimum tax.
As part of ongoing ATO consultation, we have sought feedback on guidance that will most usefully support implementation of the new measure. We will continue to seek feedback as Australia's implementation of Pillar Two progresses.
Based on feedback received to date, we have identified 3 priorities for guidance on:
- Pillar Two lodgment obligations and the ATO’s transitional approach
- the ability to seek private rulings and the new decline to rule provision for Pillar Two
- other technical and administrative aspects of ATO’s implementation of Pillar Two.
We continue to engage with the Pillar Two Global Domestic Minimum Tax Working Group to seek feedback on additional topics which require guidance. We also encourage stakeholders to contact us if you have any feedback on priority issues for public advice and guidance.
Details of the 3 initial priorities are discussed below.
Expected completion date
To be advised
Contact
Title
Pillar Two lodgment obligations and the ATO’s transitional approach
Purpose
Pillar Two introduces 4 new obligations which entities in in-scope multinational enterprise group may be required to lodge.
A new product will be created which outlines the ATO’s transitional approach and expectations in relation to these new lodgment obligations.
Expected completion date
To be advised
Contact
Title
Draft update to Taxation Ruling TR 2006/11 Private Rulings
Purpose
Taxation Ruling TR 2006/11 will be updated to provide advice on the ability to obtain private rulings on interpretative issues relating to Pillar Two and on the new Pillar Two decline to rule provision.
Expected completion date
To be advised
Contact
Brendan Wagner, Office of the Chief Tax Counsel
Title
Website guidance on key aspects of the global and domestic minimum tax
Purpose
Web content will provide information on key aspects of the new measure, including:
• when, how and who the Pillar Two rules apply to
• lodging, paying and other obligations for Pillar Two
• Pillar Two interactions with Australian domestic tax laws.
Expected completion date
Mid 2025
Contact
[4168] Royalty withholding tax and software arrangements [updated]
Title
Draft Practical Compliance Guideline
Royalty withholding tax and software arrangements – ATO compliance approach
Purpose
The draft Guideline is intended to guide taxpayers in understanding where the ATO is likely to apply compliance resources in relation to royalty withholding tax risk potentially present in software arrangements. It will provide important practical guidance for taxpayers to accompany the technical position set out in Draft Taxation Ruling TR 2024/D1 Income tax: royalties – character of payments in respect of software and intellectual property rights.
The draft Guideline is currently being developed and will be released for public consultation to shape its administrative approach and ensure it provides greater certainty for taxpayers on what the view in TR 2024/D1 will mean in practice.
Expected completion
Mid2025