Following the recent release of draft rulings and practice statements by the Australian Taxation Office (ATO) relating to the new transfer pricing legislation in Australia, the ATO recently invited comment from respected practitioners across the country to discuss practical, simplified and pragmatic measures for taxpayers in order to adequately, yet cost-effectively address their transfer pricing documentation requirements.
Alongside this initiative, the ATO is currently undertaking a revision of superseded key transfer pricing rulings.
Specifically, Taxation Ruling 1999/1 regarding the provision and receipt of intra-group services has been a primary focus, with the application of administrative concessions and the safe harbour regime being the key focus of the re-write.
The key positive amongst the flagged amendments centres around the issue of benchmarking, whereby a taxpayer who may previously have relied upon external comparable company data in order to determine an appropriate mark-up(s) on services either received or provided, may now be relieved of the time and cost associated with performing such a benchmarking study.
Whilst any amendments to broaden the scope of the administrative concessions and access to safe-harbours have the potential to positively impact, it will likely not preclude the taxpayer from performing studies and compliance measures to indeed determine whether the administrative concessions and safe-harbours are applicable in the first instance.
How the ATO will go about making determinations as to the access and applicability of broadened concessions and safe-harbours for particular taxpayers is not yet known, however it may be expected that any relief provided under the revised rulings will, in keeping with recent ATO activity, be somewhat offset by an increase in compliance. It remains to be seen where the ATO will settle on these matters. It is refreshing however to see the Revenue Authority take this initiative.
Given the ATO’s close involvement with the various OECD working parties, it is hoped that this Australian initiative is replicated internationally in order to provide a global reduction in SME transfer pricing compliance costs.