Service Entity Arrangements In The Firing Line

Extract

On 20 April 2006, the ATO issued the final version of its service trust Ruling - TR 2006/2 - entitled Income tax: deductibility of service fees paid to associated service entities: Phillips arrangements. It was previously released in draft form as TR 2005/D5. On the same day, the ATO released the accompanying Guide entitled Your service entity arrangements.

The content of the final Ruling is not materially different from the previous draft Ruling. The new Guide does contain significant variances to the previous Guide.

The final Ruling and Guide mark a significant shift by the ATO in its attitude to service arrangements. Taxpayers that do not critically consider their service arrangements, and ensure that they comply with the ATO’s stated methodologies, run the real risk of a full blown tax audit, with respect to current and previous income years, with consequential income tax adjustments and penalties.

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