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An analysis by Corrs Chambers Westgarth, Taxand Australia
The Australian Taxation Office (ATO) has recently issued draft PCG 2025/D2, clarifying its approach to assessing transfer pricing risks relating to the quantum of inbound, cross-border related party debt. The guideline applies retrospectively from 1 July 2023 and targets transfer pricing risks beyond thin capitalisation rules, focusing on the amount of debt, not just interest rates.
High-risk indicators include holding excess cash from related party loans, relying on explicit guarantees to justify debt levels, or using debt to exploit thin cap thresholds. Low-risk cases include applying the third-party debt test or maintaining conservative leverage. The ATO expects robust documentation and commercial justifications for funding choices, while multinational taxpayers should assess existing structures and prepare for increased scrutiny.
Angelina Lagana, Luke Imbriano, Nathan Unitt and James Butterworth from our Australian member firm Corrs Chambers Westgarth have published a more detailed analysis of the move and its implications here.
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