Birchstone Brief for the week ended 19 January 2024

ATO Updates

Updated draft guidance on software and IP payments and withholding tax

TR 2024/D1, which updates and replaces TR 2021/D4 (covered in the Birchstone Brief for the week ended 25 June 2021), contains the Commissioner’s updated views regarding when cross-border payments made by Australian resident entities (or non-resident entities connected to a permanent establishment in Australia) under a software arrangement will be treated as royalties and therefore subject to Australian royalty withholding tax. It is proposed that the draft ruling will apply retrospectively once finalised, to the extent that it does not conflict with the terms of settlement of any historical disputes.

PCG 2024/1 finalised: ATO compliance approach to intangibles migration arrangements

PCG 2024/1 sets out the ATO’s approach to applying compliance resources to consider the potential application of the general anti-avoidance rules (including the diverted profits tax) and/or the transfer pricing rules to certain cross-border arrangements involving the migration of intangible assets and international related parties. The Guideline:

• contains a risk assessment framework which the ATO will use to assess a taxpayer’s compliance risk, and which is intended to enable taxpayers to determine their risk profile;
• applies from 17 January 2024 to new and existing arrangements; and
• was previously issued in draft as PCG 2023/D2.

Addendum to Product Ruling issued
The ATO has issued PR 2023/9A1 – Addendum to PR 2023/9 – FTC Automator platform – Use by clients of KPMG and Directed Australia to calculate fuel tax credits.

Legislation

Exposure draft legislation – Clarifying mining and exploration measures

Treasury has released exposure draft legislation and explanatory material to:

• amend the anti-avoidance rules in the Petroleum Resource Rent Tax Assessment Act 1987 (Cth) (PRRT Act) to ensure they operate in line with the income tax anti-avoidance rules;
• clarify the meaning of ‘exploration for petroleum’ in the PRRT Act, which receives favourable tax treatment, to ensure it is not interpreted too broadly; and
• amend the ITAA 1997 to clarify that mining, quarrying and prospecting rights cannot be depreciated for income tax purposes until they are used, not merely held, following the decision in FCT v Shell Energy Holdings Australia Ltd [2022] FCAFC 2 (covered in the Birchstone Brief for the week ended 9 September 2022).