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INCOME TAX ASSESSMENT ACT 1997 - SECT 815.120 When an entity gets a transfer pricing benefit

INCOME TAX ASSESSMENT ACT 1997 - SECT 815.120

When an entity gets a transfer pricing benefit

  (1)   An entity gets a transfer pricing benefit from conditions that operate between the entity and another entity in connection with their commercial or financial relations if:

  (a)   those conditions (the actual conditions ) differ from the * arm's length conditions; and

  (b)   the actual conditions satisfy the cross - border test in subsection   (3) for the entity; and

  (c)   had the arm's length conditions operated, instead of the actual conditions, one or more of the following would, apart from this Subdivision, apply:

  (i)   the amount of the entity's taxable income for an income year would be greater ;

  (ii)   the amount of the entity's loss of a particular * sort for an income year would be less ;

  (iii)   the amount of the entity's * tax offsets for an income year would be less ;

  (iv)   an amount of * withholding tax payable in respect of interest or royalties by the entity would be greater .

Absence of condition

  (2)   For the purposes of subsection   (1), there is taken to be a difference between the actual conditions and the * arm's length conditions if:

  (a)   an actual condition exists that is not one of the arm's length conditions; or

  (b)   a condition does not exist in the actual conditions but is one of the arm's length conditions.

Cross - border test

  (3)   Conditions that operate between an entity and another entity in connection with their commercial or financial relations satisfy the cross - border test if:

  (a)   the conditions meet the overseas requirement in the following table for either or both of the entities; or

  (b)   the conditions operate in connection with a * business that the entity carries on in an * area covered by an international tax sharing treaty.

 

Overseas requirement

Item

Column 1

The conditions meet the overseas requirement for this type of entity:

Column 2

if:

1

any of the following:

(a) an Australian resident;

(b) a resident trust estate for the purposes of Division   6 of Part   III of the Income Tax Assessment Act 1936 ;

(c) a partnership in which all of the partners are, directly or indirectly through one or more interposed partnerships, Australian residents or resident trust estates

the conditions operate at or through an * overseas permanent establishment of the entity.

2

an entity not covered by column 1 of item   1

the conditions do not operate solely at or through an * Australian permanent establishment of the entity.

  (4)   For the purposes of the table in subsection   (3), treat any entity that is an Australian resident as not being an Australian resident if:

  (a)   the entity is also a resident in a country that has entered into an * international tax agreement with Australia containing a * residence article; and

  (b)   under that residence article, the entity is taken, for the purposes of the agreement, to be a resident only of that other country.

Nil amounts

  (5)   For the purposes of this section and section   815 - 145:

  (a)   treat an entity that has no taxable income for an income year as having a taxable income for the year of a nil amount; and

  (b)   treat an entity that has no loss of a particular * sort for an income year as having a loss of that sort for the year of a nil amount; and

  (c)   treat an entity that has no * tax offsets for an income year as having tax offsets for the year of a nil amount.

Meaning of residence article

  (6)   A residence article is:

  (a)   Article 4 of the United Kingdom convention (within the meaning of the International Tax Agreements Act 1953 ); or

  (b)   a corresponding provision of another * international tax agreement.

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