The TRANSFER PRICING module informs the Australian entity with international dealings of their legislated legal transfer pricing obligations. The module also demonstrates effective practical advice and assistance to the entity to implement procedures and processes that will ensure compliance and regulatory accountability throughout all levels of the entity.
The TRANSFER PRICING module advises Australian entities with international dealings of the processes and procedures they need to implement to ensure compliance with all legal and regulatory transfer pricing obligations. Core legal and regulatory obligations are based on considerations of the broad questions determining;
- Decision making;
- Accountability;
- Stewardship;
- Direction; and
- Control
To fulfil its purpose the module focuses on providing practical assistance to the entity establishing and maintaining a robust foundational framework that determines;
- How the organisation will function;
- Who is the responsible decision maker;
- What matters are relevant to the decision-making process; and
- Whether the desired outcome has been achieved.
As entities, their employees and authorised individuals are all expected to be familiar with the broad landscape of legal obligations to which they are subject as well as more specific obligations relevant to the particular sector they are operating in, the TRANSFER PRICING module should be subscribed by all Australian entities with international dealings, their employees and authorised individuals. The aim of the module is to equip the subscriber with knowledge of their transfer pricing obligations and the skills they require to establish relevant systems and processes to ensure compliance throughout the entity.
‘Transfer pricing’ refers to the prices that multinational companies set for their related party international transactions. Australian law requires that a ‘transfer price’ must be in accordance with the ‘arm’s length-principle’ and reflect what independent parties would pay for the same or similar good or service. In an ever-changing global economy transfer pricing is an important tax issue for multinational companies. The aim of Australia’s transfer pricing rules is to avoid the underpayment of tax in Australia.
The broad scope of the TRANSFER PRICING module is to provide answers to these questions;
- What are our legal obligations?
- From where are our legal obligations derived?
- How can we ensure that we are complying with our legal obligations?
- What are the consequences if we are not complying with our legal obligations?
The TRANSFER PRICING module covers all legislated legal transfer pricing obligations of Australian entities with international dealings and demonstrates practical assistance and guidance to ensure that these obligations are complied with. The module promotes the implementation and maintenance of best practice processes throughout the organisation. The module also covers the role of the regulator as well as exemptions to the obligations, if applicable, and how they may or may not apply in particular circumstances.
The module fulfils this objective by comprehensively covering three areas;
- Legislation;
- Obligations; and
- Consequences.
1. The legislative and regulatory landscape from which the primary legal obligations are derived;
- Income Tax Assessment Act 1997 (Cth);
- Tax Laws Amendment (Cross-Border Transfer Pricing) Act No 1 2012 (Cth);
- Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 (Cth);
- Taxation Administration Act 1953 (Cth);
- Treasurer’s Reports;
- Treasure’s Explanatory Materials;
- Law Administration Practice Statements;
- Electronic Transactions Act 1999 (Cth);
- Electronic Transactions Regulations 2000 (Cth);
- Income Tax Assessment Act 1936 (Cth);
- Law Companion Rulings;
- The Organisation for Economic Co-Operation and Development (OECD) Reports;
- Australian Taxation Office (ATO) International Dealings Schedule 2016; and
- Australian Taxation Office (ATO) Advance Pricing Arrangements.
2. The specific areas where legal and regulatory obligations apply to the Australian entity with international dealings;
- Arms’ length principle;
- Conditions;
- Comparability of circumstances;
- Actual commercial or financial relations;
- Exceptions;
- Commissioner’s determinations and adjustments;
- Permanent establishments; and
- Trusts and partnerships.
- Arms’ length methodology;
- Comparable uncontrolled price method;
- Resale price method;
- Cost plus method;
- Profit split method; and
- Transactional net-margin method.
- Breaching the arms’ length principle;
- Transfer pricing benefit; and
- The cross border test.
- The interaction of transfer pricing and thin capitalisation.
- Documentation requirements;
- Significant global entities; and
- General entities.
- Information to include in the International dealings schedule.
- Advance pricing arrangements;
- Bilateral;
- Multilateral;
- Unilateral; and
- Stages 1-3.
- The repealed subdivision;
- Benefit; and
- Determination and adjustments.
3. Significant consequences can apply to Australian entities with international dealings, their employees and authorised individuals found to have breached or not complied with their legal obligations. These consequences vary considerably depending on the nature and extent of the breach or failure. The TRANSFER PRICING module covers specific consequences in detail. Australia’s transfer pricing rules provide for particularly harsh penalties where a transfer pricing adjustment is made by the Commissioner and documentation is not maintained.
The TRANSFER PRICING module comprehensively covers Australian transfer pricing laws. Many countries have transfer pricing laws. The transfer pricing laws and obligations of other countries are not covered by the TRANSFER PRICING module.