Transfer Pricing Risks: cross border related party loans

On 16 May 2017, the Australian Tax Office released a draft Practical Compliance Guideline PCG 2017/D4 (Guidelines) which sets out an arithmetical approach to assess the transfer pricing risks associated with international related party loans.


The new Guidelines, which came into effect on 1 July 2017, have implications for existing and newly created financing arrangements, structures and functions.

For more information on the Guidelines please click here.

Interests on related party loans can be adjusted under Australia’s transfer pricing rules

The amount of interest you can claim or include in your income can be adjusted under Australia transfer pricing rules. In general, if the interest amount is different or the loan is structured differently from how arm’s length parties would transact, a transfer pricing adjustment risk arises.

In recent landmark Federal Court case, part of the interest paid by Chevron Australia Holdings Pty Ltd (Chevron) to its US subsidiary was denied as a deduction. The resulting primary tax and associated penalty and interest were very substantial.

To read our article on the case, please click here.

Don’t get caught in the red

Based on the ATO stated assessment criteria, it appears to us that many loans will fall into the red (very high risk) category.

The ATO stated approach for the ‘red’ category is:

  • most likely to commence reviews as a matter of priority or move directly to an audit

  • use formal information gathering powers

  • increased possibility of litigation

Time for your health check

Regardless of the risk zone, all taxpayers that have transactions involving cross-border related party loans (Loans) should ensure that legal agreements evidencing terms and conditions of the Loans are prepared.

Introducing CTS REAL

CTS REAL is a transfer pricing risk evaluator developed by ShineWing Australia specifically for multinational companies.

CTS REAL is one of several products available via ShineWing Australia’s Complete Tax Solutions (CTS) software.

Using CTS REAL our Tax experts will perform a health check on your overseas related loans to:

  • assess the transfer pricing risks

  • understand the expected ATO approach

  • identify ways to mitigate risk where required. 

If you would like to perform a risk assessment of your material international related party loans, please contact Daren Yeoh on +61 3 8635 1800 or at or your ShineWing Australia relationship partner.

For other CTS software solutions, visit


This publication is issued by ShineWing Australia Pty Limited (ShineWing Australia) exclusively for the general information of clients and staff of ShineWing Australia. The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. ShineWing Australia, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2017 ShineWing Australia Pty Limited. All rights reserved.