What this Ruling is about
This Ruling applies to taxpayers who wish to seek relief from international double taxation arising from an increased liability to tax due to a transfer pricing or profit reallocation adjustment by the Australian Taxation Office (ATO) or by a foreign tax administration. This Ruling applies only to companies.
This Ruling outlines mechanisms in the income tax law and ATO practice that deal with relief from double taxation arising from a primary international transfer pricing or profit reallocation adjustment made by either the ATO or a foreign tax administration. The mechanisms are in the Income Tax Assessment Act 1936 [F1] ('the Act' or 'the 1936 Act'), Income Tax Assessment Act 1997 ('the 1997 Act') and Australia's comprehensive double tax agreements ('DTAs') (included as schedules to the International Tax Agreements Act 1953 ('the Agreements Act')). Relief from double taxation in these circumstances is referred to in this Ruling as 'correlative relief' or 'correlative adjustment.' It is also referred to as 'corresponding adjustment' in Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations , published in July 1995 ('the 1995 OECD Transfer Pricing Report').
This Ruling uses Australia's modern DTAs (for example, the Vietnamese agreement - schedule 38 of the Agreements Act) as the basis for discussion and provides analysis of any major variations in particular treaties. References are also made to the OECD Model Tax Convention on Income and on Capital, updated as of 1 November 1997 ('the OECD Model Tax Convention').
Date of effect
This Ruling applies to years commencing both before and after its date of issue. However, this Ruling does not apply to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Ruling (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).
Contents list
Paragraph What this Ruling is about 1 Class of person/arrangement 1 Date of effect 4 Contents list 5 Index of Ruling and explanations (see detailed index of Ruling and explanations below) 6 Your comments 7
Index of Ruling and explanations
Below is a detailed index of the Ruling and explanations part of this draft Ruling: Part PART 1: INTERNATIONAL DOUBLE TAXATION 1.1 Types of international double taxation 1.1 No double tax agreement 1.9 Adjustment by foreign tax administration 1.10 Using this Ruling 1.16 PART 2: ECONOMIC DOUBLE TAXATION 2.1 INTRODUCTION 2.1 DTAs without economic double tax relief provision 2.2 DTAs with economic double tax relief provision 2.4 Flowchart 2.10 ADJUSTMENT BY FOREIGN TAX ADMINISTRATION 2.11 'Appropriate adjustment' relief 2.13 'Credit' relief provisions 2.21 Losses 2.27 Retrospective adjustment or repatriation 2.32 Deemed dividend 2.36 ADJUSTMENT BY THE ATO 2.38 Losses 2.40 Source country taxing rights-withholding taxes 2.42 PART 3: JURIDICAL DOUBLE TAXATION OF THE SAME ENTITY 3.1 INTRODUCTION 3.1 Flowchart 3.8 ADJUSTMENT BY FOREIGN TAX ADMINISTRATION 3.9 Australian resident taxpayer 3.10 Operation of the foreign tax credit system - years ended 30 June 1988 and subsequent years 3.15 Operation of certain exemptions - year ended 30 June 1991 and subsequent years 3.18 Non-resident taxpayer 3.22 ADJUSTMENT BY THE ATO 3.25 Australian resident taxpayer 3.27 Non-resident taxpayer 3.30 PART 4: MUTUAL AGREEMENT PROCEDURE 4.1 GENERAL 4.1 Taxation not in accordance with DTA 4.1 Stages of MAP 4.3 STAGE 1 4.6 Presentation of case 4.6 Time limit for presentation of Case 4.10 Case justified 4.12 Solution by competent authority presented with case 4.16 STAGE 2 4.17 Year of adjustment 4.20 Competent authority communications 4.23 TIME LIMIT FOR RESOLUTION OF CASES 4.27 Economic double taxation 4.30 Juridical double taxation 4.31 ATO ADJUSTMENT-INTERACTION BETWEEN MUTUAL AGREEMENT PROCEDURE AND DOMESTIC REVIEW RIGHTS 4.36 Objection decisions 4.38 Where competent authority agreement is reached 4.39 Where taxpayer does not agree with competent authority agreement 4.42 Where competent authority agreement has not been reached 4.43 INTERACTION BETWEEN MUTUAL AGREEMENT PROCEDURE AND REVIEW RIGHTS IN THE TAX TREATY PARTNER COUNTRY 4.46 PAYMENT OF TAX DURING MUTUAL AGREEMENT PROCEDURE 4.50 Additional tax for late payment 4.52 PAYMENT OF INTEREST ON CORRELATIVE ADJUSTMENTS 4.54 General history 4.54 Payment of interest 4.57 1984-85 income year and prior years 4.57 1985-86 to 1992-93 income years inclusive 4.58 1993-94 income year and subsequent years 4.59 Limitations on amount of interest paid 4.60 No interest payable 4.61 ADVANCE PRICING ARRANGEMENTS 4.64 DIALOGUE WITH COMPETENT AUTHORITY 4.65