Taxation Laws Amendment Act (No. 5) 2003 (142 of 2003)

Schedule 2   Thin Capitalisation: amendments taking effect on 1 July 2002

Part 2   Records about Australian permanent establishments

Income Tax Assessment Act 1997

2   Section 820-960

Repeal the section, substitute:

820-960 Records about Australian permanent establishments

(1) If an entity:

(a) is an *inward investor (general), *inward investor (financial) or *inward investing entity (ADI), for all or a part of an income year; and

(b) carries on its *business at or through one or more of its *Australian permanent establishments throughout that year; and

(c) has total revenues attributable to those Australian permanent establishments for that year that are at least $2,000,000;

the entity must keep for that year the records for which subsection (1A) or (1B) provides.

Note: A person must comply with the requirements in section 262A of the Income Tax Assessment Act 1936 about the keeping of these records (see subsections (2AA) and (3) of that section).

Australian accounting standards

(1A) If the entity chooses this subsection, it must keep the following records for the *Australian permanent establishments:

(a) a statement of financial position (within the meaning of the *accounting standards);

(b) a statement of financial performance (within the meaning of those standards).

The statements must:

(c) be prepared in accordance with the *accounting standards (in particular, but not limited to, accounting standards AASB 1001, AASB 1018 and AASB 1040); and

(d) include all the notes required to accompany them under the standards.

Overseas and international accounting standards

(1B) If the entity chooses this subsection, it must keep for the *Australian permanent establishments the statements (however described) that, under standards covered by subsection (1C) or (1D) (the overseas or international accounting standards ), correspond to the statements referred to in subsection (1A). The statements must:

(a) be prepared in accordance with those standards; and

(b) include all the notes required to accompany them under those standards.

(1C) This subsection covers the standards (however described) that correspond to the *accounting standards and are made by the responsible body in:

(a) the United Kingdom of Great Britain and Northern Ireland; or

(b) the United States of America; or

(c) Canada; or

(d) New Zealand; or

(e) Japan; or

(f) the French Republic; or

(g) the Federal Republic of Germany.

(1D) This subsection covers the international accounting standards made or adopted by the International Accounting Standards Board.

Requirements for the records under subsection (1A) or (1B)

(2) The entity must prepare the records for which subsection (1A) or (1B) provides:

(a) before the time by which the entity must lodge its tax return for the income year; and

(b) as if:

(i) the *Australian permanent establishments were an entity (the notional entity ) for which those records would be required to be prepared under the *accounting standards or the overseas or international accounting standards, as appropriate; and

(ii) for the purposes of the statement of financial position or the corresponding statement, as appropriate - the assets, liabilities (including *debt capital) and *equity capital that are attributable to the Australian permanent establishments for that income year were assets, liabilities and equity of the notional entity for that year; and

(iii) for the purposes of the statement of financial performance or the corresponding statement, as appropriate - the revenues and expenses that are attributable to the Australian permanent establishments for that year were the revenues and expenses of the notional entity for that year; and

(iv) the *accounting standards, or the overseas or international accounting standards, as appropriate, referred to income years instead of financial years or the corresponding term in the overseas or international accounting standards.

Commissioner's power to exempt from complying with Australian accounting standards

(4) The Commissioner may decide that an entity, or entities in a class of entities, need not comply with all or any part of the *accounting standards for one or more income years for the purposes of subsection (1A) if the Commissioner is satisfied that it would be unreasonable that the entity, or the entities in that class, be required to do so.

Note: The Commissioner's power under this subsection does not extend to the overseas or international accounting standards.

(5) The Commissioner:

(a) may make a decision under subsection (4) in such cases and to such extent as the Commissioner thinks fit; and

(b) must make the decision in writing; and

(c) cause a copy of the decision to be published in the Gazette.

The decision has effect despite subsection (1A).

Excluding Australian permanent establishments not covered by applicable double tax treaty

(6) An entity need not comply with this section for an income year in relation to an *Australian permanent establishment if:

(a) throughout that year, the entity was, for the purposes of a double tax agreement (within the meaning of Part X of the Income Tax Assessment Act 1936) in relation to a foreign country, a resident of that foreign country (even if the entity was also an Australian resident or a resident of another foreign country); and

(b) throughout the period during that year when the entity was carrying on its *business at or through that Australian permanent establishment, the Australian permanent establishment was not a permanent establishment within the meaning of that double tax agreement.