The Tax Specialist

Articles from the current issue:

• The MLI – Australia’s other income tax treaty

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  Australia has 44 comprehensive bilateral agreements affecting our income tax laws, and from 1 January 2019, the multilateral instrument (MLI) began operation. The MLI is another multilateral treaty which Australia signed as a means of fast-tracking some of the changes Australia agreed to as part of the OECD/G-20 BEPS project. The MLI is an awkward instrument: it will affect discrete and often trivial segments of our treaties; it affects only some of our existing bilateral treaties, others will remain unaffected; it operates from various dates; it will gradually become redundant; and working out exactly what it changes is not straightforward. This article provides an overview of the MLI, which of our treaties it affects, which provisions in those treaties will be affected, and how it will change those treaties. Tracking the impacts of the MLI on Australian law will be an arduous process that will plague practitioners for years.

• SME and private clients: Transfer pricing outside the top 1,000

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  The ATO has focused significant resources and attention in recent years to managing transfer pricing risk through large corporate assurance programs and the release of risk guidance through practical compliance guidelines, tax determinations and tax alerts. In the authors’ view, this approach is aimed at managing the tax risk of large businesses. As large businesses provide a significant portion of tax in Australia, the ATO’s focus on gaining assurance that these entities are paying their fair share of tax is not unexpected. However, it seems that the ATO has ignored, or is unaware of, the unintentional consequences that this focus has had on managing transfer pricing risk in the small-to-medium enterprise (SME) business segment. This article identifies transfer pricing considerations and challenges currently faced by SMEs and outlines the ATO’s evolving approach to dealing with the transfer pricing arrangements of SMEs.

• Applying GST to low value goods

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  When the goods and services tax (GST) was introduced, internet commerce was in its relative infancy and therefore the exclusion for imports of low value goods was of minor consequence. However, since that time, internet sales and a debate on the merits of this exclusion have grown. This led to parliament enacting legislation that extended GST to situations where, after 1 July 2018, consumers purchase low value goods and import them into Australia. This article explains this legislation, considers alternative models that were not adopted, and evaluates its impact. The approach taken in other jurisdictions, most notably New Zealand, is briefly outlined.

• The reconstruction provision in the Australian transfer pricing rules

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  Section 815-130 of the Income Tax Assessment Act 1997 (Cth) contains rules for determining the “commercial or financial relations” on the basis of which the “arm’s length conditions” are to be identified for the purposes of the transfer pricing provisions in Subdiv 815-B. The rules in s 815-130 adopt, to some extent at least, terms and tests contained in transfer pricing guidelines issued  by the OECD in 2010 which are specified in s 815-135 as mandatory reference material for the purposes of identifying the arm’s length conditions. Rewritten OECD commentary on the application of transfer pricing rules is also specified in s 815-135 as mandatory reference material in applying Subdiv 815-B for different income years. This article adopts a systematic approach to the interpretation of s 815-130, taking account of mandatory reference material and the possibility that a tax treaty may limit the application of the provision in a particular case.

• Insights for transfer pricing litigation

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  This article provides some insights in relation to preparing transfer pricing matters for litigation in the Federal Court or Administrative Appeals Tribunal. The article addresses topics including choice of forum, gathering documents, preparation of lay and expert evidence, as well as steps that may facilitate settlement. The authors seek to provide practical steps for ensuring that evidence is prepared in a targeted manner that addresses the real issues in dispute and that achieves the relevant forensic purpose. The article also considers possible future directions for transfer pricing litigation, including industries that may be the subject of future cases, as well as the kinds of legal questions that may fall to be determined.