All multinationals operating in Australia will be impacted by these new rules.
Profit focus – the new rules move focus to the arm’s length profit for an Australian taxpayer, compared to the arm’s length price under the old rules. This will give the Australian Taxation Office (ATO) wider powers to attack loss makers.
Reconstruction power – the new rules gives the ATO broader powers to reconstruct a transaction, where the actual transaction differs from the transaction that would have occurred between unrelated parties.
Self assessment – Taxpayers must decide whether they have complied with the new rules before lodging their tax returns:
- if their profits are too low they must increase their taxable income
- if their profits are too high they can decrease their taxable income
Transfer pricing documentation – A good way to comply with the self assessment obligation is to prepare transfer pricing documentation. This will document how the new rules apply to your business and quantify any required profit adjustments.
In addition, if you don’t prepare transfer pricing documentation (before you lodge your tax return) you are deemed to not have a reasonably arguable position (RAP) and so are exposed to higher penalties.
Amendment time limit – Transfer pricing adjustments under the new rules can only be made within 7 years of the original assessment. Previously there was no time limit.
With the new transfer pricing rules now law it is important to assess – can I be accused of shifting profits offshore?