Transfer Pricing - Australia
Australia’s transfer pricing legal framework has evolved over time, from a preference on transactional pricing to the new legislative provisions which place significant emphasis on arm’s length behaviour and ultimately the allocation of profits between related parties.
Subdivision 815-A was enacted in September 2012 and introduced the arm’s length principle, as set out in the Associated Enterprises or Business Profits articles of Australia’s tax treaties, into Australia’s domestic transfer pricing rules. The ATO’s position is that Subdivision 815-A confirms its position that the relevant transfer pricing articles contained in Australia’s tax treaties provide the Commissioner with assessment authority to make treaty-related transfer pricing adjustments.
As outlined in the OECD’s February 2015 report, Guidance on the Implementation of Transfer Pricing Documentation and Country-by-Country Reporting, it is envisaged that, in most cases, CbC reports will be filed in the jurisdiction of the multinational group’s ultimate parent entity and automatically exchanged with tax authorities in other jurisdictions in which the group operates. The OECD has developed three model competent authority agreements that could be used to facilitate the exchange of CbC reports.
Transfer Pricing in Australia
There are two “tiers” of Local File, with the amount of information required for a particular Local File tier reflecting the entity’s business operations, complexity and perceived level of risk:
– Short Form Local File: The reporting entity is only required to provide the Short Form Local File to the ATO if it meets at least one of the following criteria:
(1) the aggregate value of its IRPDs is less than AUD 2 million and it has no IRPDs on the short form exceptions list;
(2) it meets the Simplified Transfer Pricing Record Keeping (STPRK) criteria for “small taxpayers” and it has no IRPDs on the short form exceptions list;
(3) it meets the STPRK criteria for “materiality” and it has no IRPDs on the short form exceptions list.
– Local File: Where the reporting entity doesn’t meet the criteria for the Short Form Local File, it will be required to complete the Local File.
Not Applicable
Legislation to implement the OECD’s CbC reporting requirements was passed in December 2015. Schedule 4 to the Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015 implemented Australia’s CbC reporting regime, which is contained in Subdivision 815-E of the ITAA 97.
Australia’s CbC reporting rules apply to taxpayers in relation to income years starting on or after 1 January 2016. Under the CbC reporting rules, SGEs (multinational entities with an annual global income of AUD 1 billion or more) are required to provide the ATO with three statements within 12 months after the end of their income tax year.
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