Cross-border related party debt is a key focus area for the Australian Taxation Office (ATO), especially as regards transfer pricing. The ATO released Compliance Guideline 2017/D4 (PCG) on this topic in May for consultation and submissions. The objective of the PCG is to provide a basis for self-assessment of a taxpayer’s tax risk arising from cross-border interest payments on related party debt transactions. The PCG applies to both inbound and outbound transactions, subject to a number of exceptions.

Greenwoods & Herbert Smith Freehills has lodged a submission with the ATO on the PCG. As explained in our submission, we have a number of significant concerns with the PCG and we have urged the ATO to reconsider it very carefully before it is finalised. If the PCG is finalised as it stands, we think that many taxpayers are going to (inappropriately and undeservedly) end up in the “Red” (very high risk) or “Amber” (high risk) zones and face unnecessary and costly review activity by the ATO.

As well as commenting on various aspects of the PCG, we also asked the ATO to issue at least some interim guidance on the landmark transfer pricing decision in Chevron Australia Holdings Pty Ltd v FCT