April 2007
On 7 March 2007, the Australian Taxation Office (ATO) released Taxation Ruling TR 2007/1, “Income tax: international transfer pricing: the effects of determinations made under Division 13 of Part III of the Income Tax Assessment Act 1936, including consequential adjustments under section 136AF of that Act”. TR 2007/1 had not previously been released as a draft; however, this ruling replaces TR 1999/8 (which has been actively withdrawn as of 7 March 2007). TR 2007/1 applies retrospectively.
TR 2007/1 is a corrective update of TR 1999/8, taking into account changes in tax legislation since TR 1999/8 was released including:
- Where a transfer pricing determination is made with respect to a transaction on which royalty withholding tax has been paid, the Commissioner now has the discretionary power under section 136AF of the Income Tax Assessment Act 1936 (ITAA 1936) to determine that an amount of royalty withholding tax (or part thereof) should not be payable by the taxpayer, and to take such action as necessary to give effect to the exercise of that discretion. According to the ruling, this action would include remission of the withholding tax which is taken not to have been payable. [Previously, royalty withholding tax paid was not covered by the compensating adjustment mechanism in section 136AF].
- The revised capital allowance provisions in the Income Tax Assessment Act 1997 (Division 40: depreciating assets and Division 43: capital works). References in the ruling relating to the types of transfer pricing adjustments that can be made under section 136AD (ITAA 1936) affecting these capital allowances have been updated.
- Penalties that will apply in respect of a transfer pricing adjustment that generally came into effect from the 2001 year.
- Finally, TR 2007/1 has also been re-written in accordance with the Report on Aspects of Income Tax Self Assessment (ROSA) recommendations, and includes a statement outlining the Commissioner’s obligations in respect of a public ruling and the degree of protection that a taxpayer obtains for transactions covered by the ruling.
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