3) Advise what taxation consideration need to be given if the purchase from the Iberican operations by an Australian company were not for arms' length prices. Explain the reason and the rational of this concept requiring to be addressed for Australian Taxation purposes.
In Australia, companies and individuals can be taxable persons. They are tax on income derived inside Australia and/or from outside sources and the tax treatment depends whether or not they are residents or non-residents of Australia.
A resident individual is taxable on its assessable income derived from any source, whereas a non-resident individual is taxable only on the assessable income derived in Australia. Taxes imposed may come from business income, or in the payment of interests, dividends, royalties, rent, or capital gains. Taxes can be further classified as withholding tax or taxes on the sale of goods or render of service.
A company is resident in Australia for tax purposes if: 1) It is incorporated in Australia (irrespective of where central management and control is exercised). Once a company has been incorporated in Australia it can never lose its Australian residence for tax purposes; 2) Central management and control is exercised in Australia (irrespective of which country the company was incorporated in); and, 3) The company is neither incorporated in Australia nor is its central management and control exercised there but carries on business in Australia and its voting control is in the hands of resident Australian shareholders.1
A company which is a resident in Australia is liable to Australian income tax to all its assessable income which is not specifically exempt, less allowable deductions with a credit for qualifying foreign taxes paid. Assessable income includes the income calculated by the normal accounting concepts, with specified adjustments, and certain capital gains. Normally, tax losses can be carried forward indefinitely or transferred amongst group companies, for offset against future profits. A non-resident company is liable to income tax only on assessable income derived from sources in Australia.2
If a resident company or individual in Australia is doing business outside Australia, the taxes applicable to that country can also be available to it, and vice-versa, even if it already paid the same tax in the country of origin. That is what we call double taxation. Double taxation of foreign income for resident Australian companies has traditionally avoided by entering into a tax treaty with other countries. At present, Australia has entered into tax treaty with more than 40 countries. They prevent double taxation and fiscal evasion and foster cooperation between Australia and other international authorities by enforcing their respective tax laws.3
Income from subsidiaries resident in "unlisted" jurisdictions is taxed a second time in Australia but a tax credit is given for any tax