ATO releases fresh data on international related party dealings

On Monday (16 February), the ATO released its overview of international related party dealings (IRPD) statistics for 2023–24.

International related parties (IRPs) are entities that are not completely independent from each other, for example, being parent or subsidiary companies, companies owned by the same person, or companies run by family members.

Dealings between IRPs are subject to heightened ATO scrutiny under subdivision 815-B of the Income Tax Assessment Act 1997 (ITAA 1997), Australia’s domestic transfer pricing rules, as well as the associated enterprises provisions in international double tax agreements.

These rules seek to ensure that international entities pay the correct amount of tax in each jurisdiction where they operate.

The ATO’s 2023–24 data showed that IRP expenditure, at approximately $409 billion, eclipsed total IRP revenue of $295 billion. This indicated that Australia was a net borrower in related-party financing.

IRP expenditure was “very concentrated” on a small subset of firms, the tax authorities found. Just 1 per cent of disclosing entities accounted for 59 per cent of total IRP expenditure, disclosing over $500 million each. The majority of firms (70 per cent) – those that disclosed $10 million or under – only accounted for 4 per cent of total IRP expenditure.

A majority (64.6 per cent) of IRP expenditure related to tangible property, followed by service arrangements (19.6 per cent), financial dealings (9.6 per cent) and other expenditure (6.3 per cent).

Revenue was similarly concentrated, with 1 per cent of disclosing entities accounting for 66 per cent of total IRP revenue. Firms that disclosed up to $10 million in IRP revenue, being 77 per cent of disclosing entities, only made up 4 per cent of total IRP revenue.

Most of the IRP revenue also related to tangible property (68.8 per cent), followed by service arrangements (19.6 per cent), financial dealings (7 per cent) and other revenue (4.6 per cent).

The ATO also found that the average debt balance for inbound borrowings was $534 billion, with approximately $391 billion being interest-bearing and $143 billion interest-free.

Outbound loans had an average debt balance of $220 billion, with $154 billion being interest-bearing and $65 billion interest-free.

The top 5 jurisdictions for IRP expenditure were Singapore, the US, Japan, the UK and Germany, while the top 5 IRP revenue jurisdictions were Singapore, the US, Switzerland, the UK and Japan.