RSM Australia

Transfer pricing services

Transfer pricing is a topic that goes beyond borders… and so do weTransfer pricing in Australia

Transfer pricing is the number one commercial and fiscal issue facing companies with intra-group international transactions. The ATO, along with tax authorities from other jurisdictions, are aggressively seeking out what they perceive as their 'fair share' of the corporate tax pie. Jurisdictions with 'mature' transfer pricing regimes have invested heavily in recruitment and initiated more targeted and sophisticated transfer pricing reviews. On the other hand, countries which previously had little or no transfer pricing legislation, or Guidelines, have rapidly been introducing them in order to redress this perceived imbalance.

As a consequence, taxpayers should expect that their cross-border international transactions will face intense scrutiny both domestically and internationally from fiscal authorities.

Transfer pricing in Australia

Australia, together with other OECD member and non-OECD countries, bases its transfer pricing rules on the 'arm’s length principle'. In essence, all international transactions, of whatever nature, between related parties, must be in accordance with this principle.

Actual transactions will be reviewed as if they occurred between third parties under arm’s length conditions and must be disclosed, (International Dealings Schedule) documented and justified accordingly.

Documentation

Australia’s transfer pricing regime has recently undergone significant and fundamental change.

Now operating on a self-assessment basis, Australia’s transfer pricing rules are now some of the world’s most advanced and political. Multinational companies are well advised to maintain strict vigilance in ensuring that they prepare transfer pricing documentation in accordance with the Australian Taxation Office (ATO)’s strict expectations. Taxpayers need to satisfy the minimum requirements to maintain a Reasonably Arguable Position (‘RAP’) in the event of an adverse transfer pricing adjustment.

Regarding the risk of not preparing and maintaining contemporaneous transfer pricing documentation, we note that Australia’s new transfer pricing rules provide for particularly harsh penalties where a transfer pricing adjustment is made by the Commissioner and documentation is not maintained.

There is no longer a focus on arm’s length price but arm’s length conditions including profit outcomes. This is a five-step process.

The ATO’s most recent public rulings prescribe a new five-step process taxpayers must follow in the documentation of their transfer pricing position. RSM would be pleased to assist you in preparing and maintaining your transfer pricing documentation.

International Dealings Schedule (‘IDS’)

As a critical part of the company income tax return, the ATO requires taxpayers to file an International Dealings Schedule (‘IDS’). Where the aggregate amount of transactions or dealings of income or capital nature (including average loan balances) with international related parties is greater than A$2m.

The IDS is the ATO’s first line of sight into a taxpayer’s intercompany dealings, providing large volumes of readily accessible information based upon the disclosures made regarding the following areas:

  • countries with which a taxpayer conducts related party dealings (including a separate disclosure for tax havens)
  • traditionally ‘risky’ transactions such as royalties, interest, management fees and outbound interest-free loans
  • the percentage of transactions supported by contemporaneous transfer pricing documentation prepared in accordance with ATO guidance (or lack thereof)
  • transfer pricing methodologies employed to test the arm’s length nature of the dealings.

Business restructuring activities and branch dealings are also examined in significant depth within the IDS. Accurate preparation of your IDS is critical to ensure that unnecessary transfer pricing reviews and/or audit procedures are averted.

Should you require assistance in preparing or reviewing your IDS disclosures, we would be pleased to assist you to do so.

Risks

The ATO takes a risk-based approach to transfer pricing matters. Hence, getting the IDS right is critical. The ATO traditionally use the information obtained from the IDS, along with other information, to prepare a risk profile of a taxpayer, with a view to conducting in-depth transfer pricing risk reviews and/or audits where the commerciality of the dealings do not strictly accord with ATO expectations.

Preparing comprehensive transfer pricing documentation on a contemporaneous basis is the single most important component in making robust disclosures regarding the level of documentation and arm’s length method employed.  Strong IDS disclosures mitigate the risk of transfer pricing reviews in the first instance.

Transfer pricing update - December 2014:

The following transfer pricing ruling and PSLA’s were released on 17 December 2014: 

  • Transfer pricing documentation requirements - Taxation Ruling TR 2014/8
  • Administration of transfer pricing penalties - Practice Statement PS LA 2014/2
  • Simplifying transfer pricing record keeping - Practice Statement PS LA 2014/3

How the PM’s defeat impacts corporate tax rates

Following the proposal for reduced tax rates for corporate entities in 2016, the Treasury Laws Amendment (Enterprise Tax Plan No 2) Bill 2017 (the Bill) was ultimately defeated in the Senate on 23 August 2018 by a vote of 36 to 30. 

Foreign incorporated companies and changes to the tax ruling - What you need to know.

Most will remember the 2016 High Court ruling in the case of Bywater Investments Limited.

Reduced corporate tax rates - what rate of tax will my company pay?

While the legislation is transitioning, some have been left confused about the application of reduced corporate tax rates and the details of eligibility criteria during this state of limbo. To provide some clarity, we take a closer look.

Fringe Benefits Tax – ATO finalise their position on private use of vehicles.

New guidelines for private use exemptions of eligible motor vehicles for Fringe Benefits Tax (FBT) - ATO says yes to making a quick stop to grab a coffee (as long as it doesn’t add more than 2kms to your trip to work and is infrequent) but no to heading to cricket practice after work. 

R&D Tax Incentive Reform - Call for submissions

R&D tax reforms, as announced in the 2018-19 Federal Budget, are steps closer to implementation with the Treasurer and Minister for Jobs and Innovation releasing draft legislation proposed to enact the changes. 

New GST withholding rules - what property purchasers and developers need to know

The Federal Government has passed legislation that will require purchasers of new residential properties to remit the GST directly to the Australian Taxation Office (ATO) as part of settlement. The measures were first announced in last year’s Federal Budget. The legislation specifies: 

Budget falters on R&D tax (and how this impacts startups)

It’s the third budget handed down by Treasurer Scott Morrison and for those of us in the innovation space, a whole lot to digest. After poring over the detail, I’ve created a summary of notable items for your reading pleasure (disclaimer: it’s not all pleasant).

ATO extends lodgement date for Country-by-Country Reporting

The Australian Taxation Office (“ATO”) announced this week an extension of the due date for lodgement of the Country-by-Country report, master file and local file (collectively “CbCR”), from 31 December 2017 to 15 February 2018 for taxpayers with an income year ended on 31 December 2016.

Government Crackdown on Rental Property Deductions

The Government announced in the 2017 Federal Budget that it would be making changes to the legislation regarding Rental Property Deductions under the guise of “reducing pressure on housing affordability”.

Pages