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The arm’s length amount of debt in the transfer pricing rules: Fiction or forgotten?


The overlap of Australia’s new transfer pricing laws with the thin capitalisation rules is causing challenges and likely duplication of analysis for taxpayers — particularly for the arm’s length amount of debt test. This article provides an overview of recent transfer pricing developments, outlines other related tax developments, including the current Board of Taxation review of the thin capitalisation arm’s length debt test, and analyses the interaction of the transfer pricing laws with the thin capitalisation rules.

The article concludes with an analysis of the consequences for taxpayers, including the recommended three-step economic analysis, additional documentation requirements and related penalties exposure.

Author profile

Jock McCormack CTA
Jock McCormack, DLA Piper, is a leading Sydney-based international taxation lawyer with specific expertise in income tax and more than 30 years experience managing complex tax matters. Jock's major areas of expertise include debt and equity structuring, acquisitions/mergers/divestments, international tax including transfer pricing, capital gains tax and major projects taxation issues. Jock also advises various major corporations on ATO tax audits, tax strategy reviews, litigation and related issues including managing, negotiating and settling challenging and contentious tax issues and reviews. - Current at 24 November 2014
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