Explanatory Memorandum
(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)General outline and financial impact
Treaty-equivalent cross-border transfer pricing rules
Schedule 1 to this Bill inserts Subdivision 815-A into the Income Tax Assessment Act 1997 (ITAA 1997) to confirm that the internationally consistent transfer pricing rules contained in Australia's tax treaties and incorporated into Australia's domestic law provide assessment authority to address treaty related transfer pricing. The purpose of these rules is to limit taxable profits being shifted or misallocated offshore.
The amendments also provide direct access to Organisation for Economic Cooperation and Development guidance material and clarify how the Subdivision will interact with Division 820 of the ITAA 1997, which deals with thin capitalisation.
Date of effect: This measure applies for income years commencing on or after 1 July 2004.
The application of the law, as amended by Subdivision 815-A, is consistent with Parliament's view that treaties provided a separate basis for making transfer pricing adjustments. These amendments ensure the law can operate as the Parliament intended.
Although there has been a consistent assumption by Parliament, since at least 1982, that treaties provided a separate basis for making transfer pricing adjustments, the application date for this Bill to income years commencing on or after 1 July 2004 follows the most recent Parliamentary statement to this effect in 2003.
Proposal announced: This measure was announced in the then Assistant Treasurer and Minister for Financial Services and Superannuation's Press Release No. 145 of 1 November 2011.
Financial impact: This measure has no revenue impact as it is a revenue protection measure.
Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 1, paragraphs 1.150 to 1.158.
Compliance cost impact: Minimal. These amendments confirm the application of the law as Parliament intended.
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