Document ID: chunk:federal_register_of_legislation:C2004A00897:clause:1_4:p6
Version: federal_register_of_legislation:C2004A00897
Segment Type: clause
Provision Reference: sch 1 cl 4 (pt 6/11)
Character Range: 28848–31658

arm's length debt amount is a notional amount that, having regard to the factual assumptions set out in subsection (2) and the relevant factors mentioned in subsection (3), would satisfy both paragraphs (a) and (b):
 (a) the amount represents a notional amount of *debt capital that:
 (i) the entity would reasonably be expected to have throughout the income year; and
 (ii) would give rise to an amount of *debt deductions of the entity for that or any other income year; and
 (iii) would be attributable to the entity's Australian business as mentioned in subsection (2);
 (b) commercial lending institutions that were not *associates of the entity (the notional lenders) would reasonably be expected to have entered into *schemes that would:
 (i) give rise to *debt interests that constituted that notional amount of debt capital of the entity; and
 (ii) provide for terms and conditions for the debt interests that would reasonably be expected to have applied if the entity and the notional lenders had been dealing at arm's length with each other throughout the income year mentioned in subparagraph (1)(a)(i).

Note: The entity must keep records in accordance with section 820‑980 if the entity works out an amount under this section.

Factual assumptions

 (2) Irrespective of what actually happened during that year, the following assumptions must be made in working out that amount:
 (a) the entity's commercial activities in connection with Australia (the Australian business) during that year do not include:
 (i) any *business carried on by the entity at or through its *overseas permanent establishments; and
 (ii) the holding of any *associate entity debt, *controlled foreign entity debt or *controlled foreign entity equity; and
 (b) the entity had carried on the Australian business that it actually carried on during that year;
 (c) the nature of the entity's assets and liabilities (to the extent that they are attributable to the Australian business) had been as they were during that year;
 (d) except as stated in paragraph (1)(b) and paragraph (e) of this subsection, the entity had carried on the Australian business in the same circumstances as what actually existed during that year;
 (e) any guarantee, security or other form of credit support provided to the entity in relation to the Australian business during that year:
 (i) by its *associates; or
 (ii) by the use of assets of the entity that are attributable to the entity's overseas permanent establishments;
  is taken not to have been received by the entity.

Relevant factors

 (3) On the basis of the factual assumptions set out in subsection (2), the following factors must be taken into account in determining whether or not an amount satisfies paragraphs (1)(a) and (b):
 (a) the functions performed, the assets used,