Chevmon Australia Ltd Is a Subsidiary of Chevmon Co, Which

Chevmon Australia Ltd is a subsidiary of Chevmon Co, which is headquartered in the USA and is a significant global entity. Last financial year, Chevmon Australia paid Chevmon Co $2 billion of interest on loans that Chevmon Co provided to the Australian subsidiary. If the interest rates charged on those loans by the US parent company were 5 times the interest rate that the subsidiary could have obtained, is this arrangement likely to be affected by Australia's new diverted profits tax?

A) No, as this is an intra-group transaction, there is no real tax issue at stake
B) No as different countries have different tax rules and tax rates
C) No, as this is tax evasion
D) Yes, this is exactly the arrangement that the diverted profits tax is looking to attack

Correct Answer:

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