Mathias Cormann (WA, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

asked the Minister representing the Treasurer, upon notice, on 10 March 2011:

With reference to Taxation Ruling 2010/7 (the interaction of Division 820 of the Income Tax Assessment Act 1997 and the transfer pricing provisions):

(1) What is the policy intention of the proposed measure.

(2) How does the proposed measure enable the policy intention to be achieved.

(3) Is the effect of the proposed measure revenue neutral:

(a) if so, how has revenue neutrality been achieved;

(b) have other saving measures been needed to achieve revenue neutrality;

(c) if not, how much revenue is expected to be raised as a result of the measure; and

(d) can the annual numbers for the forward estimates period be provided, and any further information covering the longer term.

(4) Have the likely administrative and compliance costs of implementing the proposed measure been assessed; if so, what are they.

(5) (a) What stakeholders will be directly affected by the measure;

(b) have these stakeholders been involved in consultation prior to and during the development of the measure;

(c) what consultation has the Government been engaged in; and

(d) have independent bodies or experts been involved in the consultation process.

(6) Is this proposed measure a government response to an identified problem; if so, what problem is it addressing.

(7) Were any alternatives considered before this approach was proposed, if so:

(a) can details of those alternatives be provided; and

(b) why was it decided that those options would not be implemented.

(8) Will inaction pose a risk to the integrity of the tax system or broader government administration; if so, how would you rate that risk.

(9) What modelling has been carried out in developing the proposed measure.

(10) Have the broader implications of the implementation of the measure on the economy been forecast; if so, what are they.

(11) Have international comparisons been considered and does the proposed measure accord with international 'best practice'.

Penny Wong (SA, Australian Labor Party, Minister for Finance and Deregulation) Share this | Link to this | Hansard source

The Treasurer has provided the following answer to the honourable senator's question:

Taxation Ruling 2010/7 is not a proposed measure. Taxation rulings do not alter the existing tax law, but rather set out the Commissioner of Taxation's interpretation of how the existing law works. In a ruling, the Commissioner is simply expressing his view of the law enacted by Parliament and he applies accepted principles of statutory interpretation in doing so.

Taxation rulings are not legally binding on taxpayers (that is, they do not create legal obligations under the tax law for them). Rulings, once finalised, are only binding on the Commissioner. Their legal effect is to protect taxpayers who choose to follow the Commissioner's views expressed in them. Taxation rulings have no policy intent, and the Government has no involvement in the issuing of taxation rulings. The Commissioner releases draft taxation rulings for public comment before finalising them.

Most taxation rulings are considered by the ATO's Public Rulings Panel. The Panel advises the Commissioner on the issues proposed to be dealt with in taxation rulings and determinations and is made up of senior ATO officers and external experts.

Taxation rulings do not have a revenue impact on the forward estimates because, as far as the law allows, the Commissioner interprets the law consistent with policy intent on which revenue estimates were based. However, they may have a compliance leverage impact by protecting the forward estimates to the extent that revenue is at risk from taxpayers not applying the law properly. The ATO is therefore unable to provide an answer to questions (1), (2), (3), (5) (c), (6), (7), (8), (9), (10) and (11).

(4) Yes. Some taxpayers may have operated on the basis that the transfer pricing provisions cannot be applied to adjust debt deductions claimed on borrowings which satisfy the thin capitalisation 'safe harbour' requirements. It follows that these taxpayers might not have adequately addressed the issue of whether the costs incurred on these borrowings satisfy the transfer pricing provisions.

These taxpayers would have to review their practices in relation to the pricing of costs such as interest expenses, discounts on commercial paper or other costs that are directly incurred in obtaining or maintaining the debt funding provided by foreign associates.

(5) (a) Although there is some potential for this Ruling to apply in the small to medium enterprise sector, large business is the sector primarily affected, where they have not operated in accordance with the ATO's understanding of the current law, and most specifically the subsidiaries of foreign owned multi-nationals.

(5) (b) The issue dealt with by this Ruling has previously been dealt with by draft Taxation Determination TD 2007/D20, now withdrawn, which was superseded by draft Taxation Ruling TR 2009/D6 in December 2009. In addition, the ATO released a discussion paper in 2008 seeking comments on approaches to pricing costs of funding on cross-border related party debt. Following the release of the draft in December 2009 the ATO issued a further revised draft of the ruling to the National Tax Liaison Group in June 2010 for consultation. Comments on all documents have been taken into account in preparing the final version of this Ruling, which was published on www.ato.gov.au on 27 October 2010.

(5) (d) The Public Rulings Panel provided advice in the development of this ruling.