Taxation Determination

TD 92/103

Income tax: foreign income: could the Commissioner provide general guidelines on the application of the transfer pricing provisions of Division 13 to non arm's length loans provided by a controlled foreign company (CFC) resident in a listed country to another CFC resident in the same listed country?

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FOI status:

may be releasedFOI number: I 1212704

1. Generally, we will not apply the transfer pricing provisions if:

(a)

a CFC that is a resident of a listed country provides a non arm's length loan to another CFC that is also a resident of that country;

(b)

both of the CFCs are controlled by the same Australian resident taxpayers; and

(c)

the non arm's length loan does not result in the reduction of any designated concession income (DCI) or other amount that would have been taken into account in calculating the attributable income of either CFC.

2. The transfer pricing provisions may be applied if any non arm's length loan arrangement has the effect of reducing the profits of a non-resident entity which would otherwise have been included in the assessable income of a taxpayer. For example, Division 13 may be applied in circumstances where an excessive amount of interest is charged on a loan and this has the effect of reducing DCI or other income that would have been attributed to a resident taxpayer.

3. However, where an interest free loan is made between two CFCs (resident in the same listed country and controlled by the same Australian resident taxpayers), we will not apply Division 13 to the loan to create an amount of interest income unless the loan results in a reduction of another amount, in relation to either CFC, which would be DCI or an amount to which subparagraph 385(2)(a)(ii) applies.

Commissioner of Taxation
1 July 1992

References

ATO references:
NO 92/3745-3

Subject References:
CFCs
listed country
non arm's length loans

Legislative References:
ITAA Div 13 of Pt III
ITAA 385(2)(a)(ii)