Thin capitalisation: eroding asset values and increasing debt ... - PwC

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TaxTalk – Electronic Bulletin of Australian Tax Developments Australia joins global effort to combat tax havens On 21 October 2008, the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs issued a media release stating that the Australian Government endorses the strong action taken by seventeen countries at the Finance Minister meeting in Paris on Transparency and Exchange of Information convened by France and Germany. At that meeting, the attendees supported the principle of converging responses to counteract tax fraud and evasion by adopting measures appropriate to each country and coordination of some of their actions. In addition to agreeing on a number of other matters, the participating countries: • expressed their willingness to use the latest version of the Article 26 of the Organisation for Economic Cooperation and Development (OECD) Model Tax Convention when negotiating new double taxation agreements, and to consider in due course terminating some of their existing treaties in cases where amendments could not be made accordingly. Article 26 creates an obligation to exchange information that is relevant to the correct application of a tax convention as well as for purposes of the administration and enforcement of domestic tax laws. • agreed to ask the OECD to establish a methodology to provide a clear distinction between the countries and territories which have substantially implemented the OECD standard on exchange of information and those which have not, and to publish its conclusions in 2009 • agreed to ask the OECD to require from states which want to join the OECD to implement prior to membership the OECD principles on transparency and exchange of information, and • agreed to call on aid agencies to give extra weight to the principles of tax transparency and information exchange when designing their aid programs. For further information, please contact your usual PricewaterhouseCoopers adviser, or: Michael Bersten, Partner (02) 8266 6858 michael.bersten@au.pwc.com Chris Sievers, Partner (03) 8603 4208 chris.sievers@au.pwc.com Profits from leasing ships and aircraft Taxation Ruling TR 2008/8, issued on 22 October 2008, sets out the Commissioner’s view about: • what profits derived from the leasing of ships and aircraft fall within the ships and aircraft articles of each of Australia’s tax treaties • in what circumstances Australia is allocated a right to tax those leasing profits under the ships and aircraft article, and • the method of assessment of such profits. Australia’s position in respect of the ships and aircraft article in its treaties is generally to preserve source taxing rights over profits from internal ship and aircraft operations that include both transport and non-transport activities. Australia also generally treats as internal traffic the operations of ships or aircraft confined solely to places in Australia, even if they form part of an overall international voyage. TR 2008/8 was previously issued in draft as TR 2008/D3 and is substantially the same as the draft. However, the examples in the final Ruling have been updated to further clarity that: • Where Australia is allocated source country taxing rights over certain ship and aircraft leasing profits under the relevant tax treaty article, those leasing profits are deemed to have a source in Australia for the purposes of Australia’s domestic tax law provisions. • There are some circumstances as outlined in the Ruling that require the adoption of a reasonable basis of apportionment. According to the Ruling, an acceptable basis of apportionment is one based on time, similar to the time apportionment basis contained in Taxation Ruling TR 2006/1 covering ship charterparties. The Ruling applies both before and after its date of issue. For further information, please contact your usual PricewaterhouseCoopers adviser, or: Tony Carroll, Partner (02) 8266 2965 tony.carroll@au.pwc.com Adrian Green, Partner (02) 8266 7890 adrian.green@au.pwc.com Graham Sorensen, Partner (07) 3257 8548 graham.sorensen@au.pwc.com PricewaterhouseCoopers : 14
TaxTalk – Electronic Bulletin of Australian Tax Developments Goods and Services Tax (GST) developments the cancellation fee may fall into one of the following categories, each of which involves a supply: • cancellation fees as consideration for the intended supply The Commissioner’s position on cancellation fees Draft GST Ruling GSTR 2008/D4, issued on 29 October 2008, sets out the Commissioner’s preliminary view on the GST consequences resulting from cancellation fees paid when an arrangement under which a particular supply was intended to be made (intended supply) does not proceed or does not proceed in the manner originally contemplated. Because cancellation fees are generally not charged when the supply is cancelled by the supplier (except in relation to a ticketed arrangement for the supply of performances, events or similar arrangements), the draft Ruling focuses on arrangements that are cancelled by or on behalf of a customer. In particular, GSTR 2008/D4 principally examines whether there is a supply for which a cancellation fee is consideration, and also discusses the interaction between security deposits and cancellation fees, as well as the circumstances in which a cancellation fee is not consideration for a ‘supply’. In considering the GST consequences where there is a cancellation fee paid for failure to proceed with an arrangement, GSTR 2008/D4 notes that the failure to proceed with an arrangement under which an intended supply was to be made may involve: – – – the customer notifying the supplier that they are cancelling before the time of the intended supply (a ‘cancellation’) the customer failing to take advantage of the arrangement by not showing up at the time of the intended supply (a ‘no show’), or the customer showing up late (a ‘late show’). GSTR 2008/D4 notes that in some cases, the effect of a ‘late show’ will be exactly the same as a ‘no show’ and thus when used in GSTR 2008/D4, the term ‘no show’ should be taken to include a ‘late show’ that has the same outcome as a ‘no show’. In GSTR 2008/D4, the Commissioner considers whether the cancellation fee is consideration for a supply and states that • cancellation fees as consideration for a facilitation supply which occurs where the supplier performs certain tasks in preparing to make the intended supply • cancellation fees as consideration for different goods, services or other things related to the intended supply, such as where the supplier provides the customer with work in progress if the intended supply is cancelled • cancellation fees as consideration for the entry into obligations to do certain things under the terms of an arrangement, such as to not take other appointments at a particular time allocated to the customer • cancellation fees as consideration for a cancellation supply • cancellation fees as consideration for a release supply, such supply being the creation or surrender of contractual rights, or • cancellation fees as damages, penalties or compensation; in this case, while an amount paid in relation to a cancelled arrangement might be described as ‘damages’, a ‘penalty’ or ‘compensation’, the Commissioner considers that this does not mean that the amount is not thereby consideration for a supply. The Commissioner expresses the view that in a very limited number of cases, the facts of a case may establish that a customer made an ex gratia payment (for example, a payment with the expectation of maintaining a good relationship with the supplier in circumstances where the supplier is not obliged to do, or has not done, anything in connection with the payment). In this rare situation, according to the Commissioner, the amount will not constitute consideration for a supply PricewaterhouseCoopers : 15
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Thin capitalisation: eroding asset values and increasing debt ... - PwC

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