Australia

Details

  • Service: Tax, Global Transfer Pricing Services
  • Type: Regulatory update
  • Date: 14/03/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Nick Drizen

Nick Drizen
Director, Global Transfer Pricing Services

+61 8 9278 2166

ndrizen@kpmg.com.au

Practical steps to prepare for the new transfer pricing regime 

by Nick Drizen, Transfer Pricing Specialist

Most groups will already have commenced an accounting period in the new transfer pricing self-assessment regime. The new rules require a taxpayer to consider the substance and form of each transaction. Whilst this could be considered at year-end, it is prudent to consider the position on a real time basis if the aim is to have a 'reasonably arguable position' to support your self-assessment position and mitigate potential penalties.

There are two key practical steps that you should consider now for all material intra group transactions:

 

Form

Most transactions between independent parties are evidenced by legal documentation. Accordingly taxpayers can benefit from putting in place written agreements to evidence material transactions with international related parties and their key terms (e.g agreements to cover management services, distribution, royalties and loans as the case may be). These agreements should cover the key terms likely to be included in similar agreements between independent parties.

 

Substance

The Australian Taxation Office (ATO) has new powers to reconstruct transactions, where the substance of the transaction differs from the form.

 

It would be prudent to focus now on higher risk intra group transactions and gather appropriate economic and factual evidence to support that a transaction with similar terms would be agreed at arm’s length.

 

For example, a group may have entered into a ten-year related party loan facility. The ATO could contend that the only funding available at the time the loan was entered into was for a shorter duration carrying a lower interest rate. This could create a risk of an audit adjustment. By considering the position pre year end, a group can commence gathering relevant evidence to support its position or to consider whether the terms of the transaction need to be amended to be consistent with the terms of similar transactions between independent parties.

 

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