Commonwealth Consolidated Acts

INCOME TAX ASSESSMENT ACT 1997 - SECT 815.125

  (1)   The arm's length conditions , in relation to conditions that operate between an entity and another entity, are the conditions that might be expected to operate between independent entities dealing wholly independently with one another in comparable circumstances.

Most appropriate and reliable method to be used

  (2)   In identifying the * arm's length conditions, use the method, or the combination of methods, that is the most appropriate and reliable, having regard to all relevant factors, including the following:

  (a)   the respective strengths and weaknesses of the possible methods in their application to the actual conditions;

  (b)   the circumstances, including the functions performed, assets used and risks borne by the entities;

  (c)   the availability of reliable information required to apply a particular method;

  (d)   the degree of comparability between the actual circumstances and the comparable circumstances, including the reliability of any adjustments to eliminate the effect of material differences between those circumstances.

Note:   The possible methods include the methods set out in the documents mentioned in section   815 - 135 (about relevant guidance material).

Comparability of circumstances

  (3)   In identifying comparable circumstances for the purpose of this section, regard must be had to all relevant factors, including the following:

  (a)   the functions performed, assets used and risks borne by the entities;

  (b)   the characteristics of any property or services transferred;

  (c)   the terms of any relevant contracts between the entities;

  (d)   the economic circumstances;

  (e)   the business strategies of the entities.

  (4)   For the purposes of this section, circumstances are comparable to actual circumstances if, to the extent (if any) that the circumstances differ from the actual circumstances:

  (a)   the difference does not materially affect a condition that is relevant to the method; or

  (b)   a reasonably accurate adjustment can be made to eliminate the effect of the difference on a condition that is relevant to the method.