Transfer Pricing & international tax
Date:2021-08-03 15:20:07

Transfer Pricing

Transfer pricing is a lesser known concept known to fewer accounting firms in Australia. Essentially it means the value which is attached to the goods or services sold, traded or transferred between related parties whether within the country to a different entity or internationally. It becomes a matter of grave concern when it is international as Australian government  would be cautious if purchase or sales of goods and services with a related party in another country would amount to loss of revenue and respective taxes and non disclosure could tantamount to money laundering in certain circumstances if “arms length transactions” have not taken place. The principal of “Arms Length Transactions” requires the prices of goods or services sold to related parties should reflect what an independent unknown party would pay for the same or similar goods or services.

Australian Taxation Office has various data matching tools in this regard and with each passing day, the focus is getting wider. With double taxation treaty and co-operation between OECD countries, it is now easier to keep a increased global and domestic scrutiny on such transactions.ATO can adjust the companies taxable income to bring it into line with the comparable “arms length” results if its found that company’s results are found to be substantially different to other non related entities. ATO keeps a close watch on such companies as if such companies set their transfer prices too low or high, they can shift their profits to low-tax countries and pay lesser tax in Australia.

Therefore, it is utmost important for such global organisations that have transactions with related parties to document their cross border transactions with related parties in line with the domestic tax rules in countries where they operate. 

Australian transfer pricing rules

For such Australian entities which have transactions with related entities, its obligatory to keep records of their transfer pricing policies, called “Transfer Pricing Manuals”. This manual should define the basis of charging for such goods and services, along with all related assumptions or premises. It should contain on overview of the group’s organisational structure, its global and Australian business activity and analysis of the relevant industry in which the group operates, both internationally and in Australia. Further, it requires to benchmark all intercompany transactions in a given financial year to determine if its arms length. This should be done prior to lodgement of tax returns.

In addition, if the transactions exceed $2 million, they should be disclosed in the respective tax returns through International Dealing schedule (IDS). The schedule explains the transfer pricing methodology applied by the entity for all transactions as also the level of documentation kept for such transactions.

There are additional transfer pricing rules for “Significant Global Entities” which are adopted on Country-by-Country  (CbC) basis and submission of CbC Local File, CbC Master File and CbC Report. In certain cases, the entity may be required to pass ATO Multinational Anti-Avoidance Law (MAAL)

Does your Entity satisfies “Arms Length” Test”

It will be important for your Entity to know if “Arms Length” requirement test is satisfied. What becomes a challenge is to know the comparative prices charges by other competitors as their financial information is not available to anyone.TaxPlanners has access to sophisticated database of thousands of companies across different industries and states to assist our clients in this respect!

We have specialists dealing with above matters with ATO transfer pricing reviews and Advance Price Agreements for various of our clients. We specialise in meeting with Transfer Price Obligations , creation of relevant documentations in this regard to secure your position as also to get you a positive outcome in case of ATO Transfer Pricing review.

Our transfer pricing services

Preparation & review of transfer pricing documentation

  • Transfer pricing documentation monitoring and updating in accordance with the Australian regime, addressing the ATO’s requirement for a reasonably arguable position (RAP)
  • International Dealings Schedule (IDS) and disclosures
  • Country by Country report, Master file and Australian local file with required disclosures, if required.

Transfer pricing structuring & strategies

  • Designing, implementing and evaluating transfer pricing structures, methods and policies based on third-party databases
  • Tax planning from a transfer pricing point of view at regional, national and international level
  • Creation and annual updates of benchmark and database analyses.

Responding to Australian Taxation Office audits and dispute resolution

  • ATO risk reviews, audit or litigation assistance including strategy advice, drafting letters and meetings, defending transfer pricing policies and documentation
  • Obtaining an Advance Pricing Agreement (APA) with local (ATO) and overseas tax authorities
  • Support in arbitration proceedings and in mutual agreement procedures (MAPs).


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