The risks faced by mid-size businesses, indeed businesses of all sizes, in choosing the right price for transactions with related parties are difficult to mitigate. Getting the amount wrong can result in awkward commercial and tax issues arising at a later time at least, if not pricey tax litigation and penalties.
The Australian Taxation Office has now started to issue private rulings to confirm market values. Businesses can provide valuations to the ATO and ask them to confirm it. They even will provide the valuation themselves!
While both approaches will come at a cost, the opportunity to confirm valuations is welcome and gives greater certainty for mid-size businesses & their Boards looking for clarity about their tax positions, especially as they look to survive due diligence reviews in future business events.
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There are several advantages to requesting a market value private ruling as opposed to obtaining a private valuation. A market value private ruling: - gives your client greater certainty about their tax matters - is binding advice that your client can rely on - is completed by a professional valuer and your client can be involved in the selection and appointment of that valuer - removes the risk of providing us with a valuation that does not meet our requirements, which could lead to further costs for your client.