• Service: Tax, Global Transfer Pricing Services
  • Type: Regulatory update
  • Date: 17/04/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Sean Wright

Sean Wright
Senior Manager, Tax

+61 2 9346 5531

Transfer pricing reconstruction provisions and documentation requirements  

by Sean Wright, Transfer Pricing Specialist

The Australian Taxation Office (ATO) has released two new Draft Rulings which provide the Commissioner’s view on the application of the reconstruction provisions of Section 815-130, of Subdivision 815-B of the Income Tax Assessment Act 1997, and its view of documentation requirements for Subdivision 284-E in Schedule 1 to the Taxation Administration Act 1953.

TR 2014/D3 explains the ATO’s views as to the application of the 'basic rule' for considering whether a transfer pricing (TP) benefit may exist, and how the exclusions therein will be applied to determine situations where the Commissioner is empowered to disregard the actual commercial or financial relations that exist, having regard to the form and substance of these relations. Where situations occur the Commissioner may disregard part or all of these commercial and financial relations, substitute an alternative or determine that they may not have taken place at all.


TR 2014/4 sets out the ATO’s views, for Subdivisions 815-B or 815-C, regarding how and when TP documentation should be prepared and what needs to be considered and contained within the documentation to meet the 'reasonably arguable position' (RAP) standard to mitigate the impact of penalties should ATO compliance action result in adjustments. Documentation must be contemporaneous, held by the Australian entity or readily available to it, in English (or readily convertible) and explain how the Subdivision applies and best achieves consistency with relevant guidance material.


Complementing this ruling are practice statements explaining the process for compiling TP documentation (PS LA 3673), including a new '5 Step Process', and the process around determining liability to and assessment and/or remission of such penalties (PS LA 3672). Both PSLA’s identify the conditions where a RAP is required and will be accepted by the ATO to support the identification, or otherwise, of a TP benefit.


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