There are two key practical steps that you should consider now for all material intra group transactions:
Most transactions between independent parties are evidenced by legal documentation. Accordingly taxpayers can benefit from putting in place written agreements to evidence material transactions with international related parties and their key terms (e.g agreements to cover management services, distribution, royalties and loans as the case may be). These agreements should cover the key terms likely to be included in similar agreements between independent parties.
The Australian Taxation Office (ATO) has new powers to reconstruct transactions, where the substance of the transaction differs from the form.
It would be prudent to focus now on higher risk intra group transactions and gather appropriate economic and factual evidence to support that a transaction with similar terms would be agreed at arm’s length.
For example, a group may have entered into a ten-year related party loan facility. The ATO could contend that the only funding available at the time the loan was entered into was for a shorter duration carrying a lower interest rate. This could create a risk of an audit adjustment. By considering the position pre year end, a group can commence gathering relevant evidence to support its position or to consider whether the terms of the transaction need to be amended to be consistent with the terms of similar transactions between independent parties.