Transfer pricing in Australia at a glance
|Are there specific transfer pricing regulations?||Yes|
|Submission deadline upon request||21-28 days|
|Annual update required||Yes|
|Official language requirements||English|
|Potential impact of penalties||50% of tax avoided via transfer pricing|
Australian tax law
The Australian Tax Authority (ATO) has issued many transfer pricing rules, below is an overview of all the relevant regulations:
- TR 92/11 — Loan arrangements and credit balances
- TR 94/14 — Basic concepts underlying the operation of Australia’s transfer pricing rules
- TR 97/20 — Pricing methodologies
- TR 98/11 — Documentation
- TR 98/16 — Penalties
- TR 1999/1 — Charging for services
- TR 2000/16 — Relief from double taxation and the Mutual Agreement Procedure
- TR 2001/11 — Operation of Australia’s permanent establishment attribution rules
- TR 2003/1 — Thin capitalization — Applying the arm’s length debt test
- TR 2004/1 — Cost contribution arrangements
- TR 2007/1 — Effect of determinations under Division 13
- TR 2010/7 — Interaction of Australia’s thin capitalization rules and the transfer pricing provisions
- TR 2011/1 — Application of the transfer pricing provisions to business restructurings by multinational enterprises.
The principles of the OECD Transfer Pricing Guidelines are accepted in Australia and if the national regulations deviate from the OECD Guideline such is indicated. The ATO will consider the use of all of the OECD-recognized transfer pricing methods and will also consider broader (or other) methods for particular facts and circumstances. The new transfer pricing rules effectively incorporate the OECD Guidelines into Australia’s domestic transfer pricing legislation.
Accepted methods are:
- The comparable uncontrolled price method
- The resale price method
- The cost plus method
- The profit split method
- The transactional net margin method
- Any other method that results in an arm’s length outcome.
Priority of methods
Rules for transfer pricing in Australia prescribe that the most appropriate method should be used.
Information that should be included in the documentation:
- Record the transfer price setting process and, in particular, verify the outcome of those transactions against the arm’s length standard
- Business, economic and industry analyses
Rules for transfer pricing in Australia prescribe that all documentation should be submitted in English.
Requirements to prepare documentation annually
In Australia a taxpayer is obliged to update its documentation annually. However, if no significant changes have occurred, a short report stating the minor changes will be sufficient.
Submission deadline upon request by tax authorities
Upon the request of the tax authorities, a taxpayer generally has 21 to 28 days to submit its documentation.
Advance Pricing Agreements
In Australia it is possible to obtain unilateral, bilateral and multilateral Advance Pricing Agreements (APA).
The term for which an APA is agreed upon is generally three to five years.
If a taxpayer fails to comply with the Australian documentation requirements, an administrative penalty may be imposed. Under Australian transfer pricing regulations the penalties are as following:
- 50 percent of the tax avoided for transfer pricing arrangements entered into with the sole or dominant purpose of enabling a taxpayer to pay no or less tax
- 25 percent of the tax avoided for other transfer pricing arrangements