Subdivision 355-F - Integrity Rules of Income Tax Assessment Act 1997 (ITAA 1997) states that where a R & D entity incurs expenditure in connection with a R & D activity and the expenditure is not at arms length and / or the expenditure exceeds the market value, the R & D entity is treated as if the amount of the expenditure it incurred were equal to the arms length value.

This legislation is obviously designed to prevent R & D organisations that exist within a group from overstating their expenditure in order to claim a greater tax credit.