The Commissioner of Taxation issued Circular 1/2023, which states that the provisions relating to “back-to-back” financing arrangements are retroactively terminated as of 31 December 2021.

Based on the above, the application of the simplification measures on the intra-group “back-to-back” financing transactions for tax purposes (e.g., the recognition of the after-tax net taxable profit margin of 2% or 2,286% before tax net margin), will not be applicable as of 1 January 2022.

Please also note that as of 1 January 2022, the intra-group “back-to-back” financing transactions together with any other related party transaction must be executed at an arm’s length basis and on normal commercial terms. Also (subject to conditions), there could be an obligation to prepare a transfer pricing study and a local file covering the specific related party transactions.