December 11, 2020
Australian Taxation Office releases final guidance on outbound interest-free loans between related parties
On 10 December 2020, the Australian Taxation Office (ATO) released the final version of Schedule 3 to its Practical Compliance Guideline PCG 2017/4 () in relation to outbound interest-free loans between related parties. There are also minor updates to the PCG’s other Schedules, reflecting the latest version of the ATO’s Reportable Tax Position (RTP) Schedule.
The final Schedule applies from 1 January 2020 to both new and existing instruments and outlines the ATO’s views on factors that taxpayers are required to consider in risk scoring an outbound interest-free loan arrangement.
The guidance in the Schedule is potentially complex, subjective and places a significant focus on taxpayers being able to ”evidence” their self-assessed position.
Changes adopted against the August 2020 draft Schedule
The final Schedule is largely unchanged from the draft Schedule. The ATO maintains the presumption that interest-free loans between related parties are high risk (amber risk zone), before consideration of any other characteristics of the financing arrangement.
We confirm however that the ATO has made four notable and important changes in the final Schedule:
Unfortunately, the Commissioner has not included further guidance in relation to inbound interest-free loans.
The analysis to satisfy the requirements in the final PCG are potentially complex and subjective. It will require taxpayers to devote significant time to gather ”evidence” that supports their position. Accordingly, taxpayers should consider these issues for new and existing arrangements well ahead of tax return filings; particularly, if a PCG/RTP Schedule disclosure will be required.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Australia), Oceania Leader – Transfer Pricing, Sydney
Ernst & Young (Australia), International Tax & Transaction Services – Transfer Pricing, Perth
Ernst & Young LLP (United States), Australian Tax Desk, New York
Ernst & Young LLP (United Kingdom), Australian Tax Desk, London