The Australian Taxation Office (ATO) has finalised its guidance on outbound interest-free loans between related parties. The final guidance takes the form of a new Schedule 3 to its Practical Compliance Guideline PCG 2017/4 on cross-border related party financing arrangements. The guidance in Schedule 3 has retrospective effect from 1 January 2020, applying to existing and newly created related party interest-free loans.
The finalised Schedule 3 incorporates minor changes from the previously issued draft guidance (released in August 2020) and includes amendments to reflect the requirement for taxpayers to disclose their self-assessed risk zone rating in the 2021 Reportable Tax Position (RTP) Schedule that is required to be lodged with the annual income tax return for many companies. The most significant change from the draft guidance is the removal of the ‘sovereign risk of borrower entity’ indicator from the pricing risk scoring table.