Australia

Details

  • Service: Tax, Corporate Tax, Dispute Resolution
  • Industry: Financial Services
  • Type: Regulatory update
  • Date: 11/02/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Julian Humphrey

Julian Humphrey
Head of Tax, Banking Sector

+61 2 9335 7682

jrhumphrey@kpmg.com.au

Has your Tax Sharing Agreement had its annual service? 

by Julian Humphrey, Financial Services Specialist, and Jeremy Geale, Tax Law Specialist

The Australian Taxation Office (ATO) has recently completed the transformation of its Receivables Policy into Law Administration Practice Statements (or PSLAs). The review culminated last month in the reissue of Chapter 35 of the Receivables Policy relating to the collection of consolidated group liabilities as PSLA2013/5. PSLA2013/5 contains the ATO’s approach to tax sharing agreements (or TSAs) and clear exit of subsidiaries from consolidated groups.

Although PSLA2013/5 is not substantially different, its release is an important reminder of the need to regularly 'service' and 'maintain' tax sharing agreements.

 

One current issue for tax sharing agreements is the introduction on monthly pay as you go (PAYG) instalments from 1 January 2014 for the largest corporate tax entities. This has introduced a new item in the table of tax related liabilities in Section 721-10.

 

Most TSAs refer to specific tax related liabilities in that table and now need to be updated to incorporate monthly PAYG instalments. Whilst TSAs might contain provisions that seek to address change of law, these provisions need to be carefully considered to ensure they capture new tax related liabilities.

 

There is limited time remaining to update tax sharing agreements to include monthly PAYG instalments prior to the first due date of those instalments on 21 February 2014. Failure to include monthly PAYG instalments in your TSA will mean group members are jointly and severally liable for these liabilities. This can have flow on impacts on future divestments and clear exit arrangements.

 

It is also prudent to confirm that the allocation mechanism used in the TSA produces a reasonable allocation in all expected circumstances. There have been a number of recent experiences where the typical standalone approach produces unexpected allocations.

 

And of course, the tax funding agreement is also likely to require a 'service'.

 

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