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ATO Tightens Scrutiny of Related-Party Financing
The Australian Taxation Office (ATO) is introducing a new risk assessment system for loans between related international parties. Under the latest practical compliance guideline (PCG 2025/D2), companies must review transfer pricing arrangements before considering thin capitalisation, thereby increasing compliance demands for all inbound financing.
ATO Intensifies Reporting and Analytics
The ATO is increasing oversight with advanced analytics, particularly regarding restructures, financing, and group structures. More robust documentation and reporting are now required to reduce audit risks.
Major Changes to Thin Capitalisation Rules
Australia is shifting to an earnings-based approach for thin capitalisation. From 2025, multinationals must meet stricter transfer pricing requirements before evaluating their debt levels for thin cap purposes. These changes will impact all affected arrangements from 2025 onwards.
New Local File V4.0 Reporting Standards
Starting January 2025, businesses will face updated Local File requirements. The changes demand more detailed disclosure (especially around restructures) and introduce a new digital schema to ensure consistent and thorough reporting.
Public Country-by-Country Reporting Goes Live
For years beginning July 2024 (reports due 2026), Australia will require multinational groups to publicly report key tax and financial data. Transparency standards will rise, with exemptions and penalties clearly defined in draft ATO guidelines.
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Stricter Exemptions for CbC Reporting
The ATO is tightening which multinationals can claim exemptions from country-by-country reporting. From 2025, only three narrowly defined exemption categories qualify, and more robust evidence is required from applicants.
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Alignment with Latest OECD TP Guidelines
Australia is updating its transfer pricing approach to reflect the 2022 OECD Transfer Pricing Guidelines. These updates concentrate on complex issues such as hard-to-value intangibles and digital business models.
ATO Raises the Bar on Intangibles Review
The ATO will increase scrutiny on transfers (migrations) of intangibles such as software and intellectual property. New guidance and major court decisions from late 2025 will raise documentation and risk assessment standards.
15% Global Minimum Tax Now in Effect
Australia is implementing a 15% global minimum tax (Pillar 2) for large multinational corporations as part of G20 and OECD reforms. These rules take effect from 2024, with further anti-avoidance provisions covering undertaxed profits coming in 2025.
Landmark Alcoa Transfer Pricing Ruling
A recent ruling by the Administrative Review Tribunal in the Alcoa of Australia Ltd v Commissioner of Taxation case clarified the use of Comparable Uncontrolled Price (CUP) data and arm's length standards for both related- and third-party transactions. The decision is final, as it was not appealed by the ATO.
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