On September 26, 2018 the Australian Taxation Office (ATO) released 2 documents providing guidance regarding the diverted profits tax (DPT). The first document is a Law Companion Ruling (LCR 2018/6). The other document is a Practical Compliance Guideline (PCG 2018/5).
Law Companion Ruling (LCR 2018/6)
The Law Companion Ruling (LCR 2018/6) aims to help affected taxpayers and their advisors understand how the DPT law will apply and to clarify key concepts introduced by the measure. The 'Specific issues for guidance' section (paragraphs 10 to 50) of this Ruling is a public ruling, effective from July 1, 2017 for those who rely on it in good faith.
The LCR starts by outlining the law. Subsequently the following specific issues for guidance are discussed:
· Principal purpose test
o Consistency with the test in the multinational anti-avoidance legislation (MAAL)
o Consideration of the eleven matters
o Quantifiable non-tax financial benefits
o The amount of the tax benefit mentioned in paragraph 177J(1)(b)
· Sufficient foreign tax test
o Foreign tax liability: determination of amount
o Foreign tax liability: recognised entities - groups of entities
o Meaning of foreign income tax
o Reduced Australian tax liability: interaction with the thin capitalisation rules
o Foreign tax liability: recognition of losses and foreign credits
· Sufficient economic substance test
o Concept of economic substance
o Relevance of the OECD Guidelines
o Profit must reasonably reflect the economic substance of the entity's activities
Click here to be forwarded to the Law Companion Ruling (LCR 2018/6) as released by the ATO on September 26, 2018.
Practical Compliance Guideline (PCG 2018/5)
The Practical Compliance Guideline has effect from July 1, 2017 and applies to existing and new arrangements. The Gduideline sets out the ATO’s risk assessment and client engagement frameworks for the DPT. It also outlines the ATO’s compliance approach when the DPT is identified as an area of concern.
According to the ATO taxpayers can use this Guideline to:
· understand the ATO’s approach to assessing risk
· determine the engagement one can expect from the ATO based on the risk of one’s arrangement, where that risk is identified in the course of our ordinary compliance activity, and
· determine the level of engagement the ATO would generally expect from a taxpayer based on the taxpayer’s assessment of the risk of its arrangement, and the types of products that may be appropriate to provide the taxpayer with greater certainty.
The Guideline is structured as follows:
· background to the DPT
· the ATO’s compliance approach
· the ATO’s risk assessment framework
· the ATO’s client engagement framework, and
· relevant documentation.
Click here to be forwarded to the Practical Compliance Guideline (PCG 2018/5) as released by the ATO on September 26, 2018.
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