• Service: Tax, Global Transfer Pricing Services
  • Type: Regulatory update
  • Date: 4/17/2014

Australia - Draft rulings on transfer pricing reconstruction, documentation requirements 

April 17:  The Australian Taxation Office (ATO) released two “draft rulings” providing the Commissioner’s view on the application of the transfer pricing reconstruction provisions and documentation requirements in Australian tax law.
  • The first draft ruling (TR 2014/D3) [PDF 228 KB] explains the ATO’s views as to the application of the “basic rule” for considering whether a transfer pricing benefit may exist, and how exclusions will be applied to determine situations when the Commissioner is authorized to disregard the actual commercial or financial relations that exist, having regard to the form and substance of these relations. The draft ruling provides that in appropriate instances, 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.
  • The second draft ruling (TR 2014/4) [PDF 184 KB] sets out the ATO’s views regarding how and when transfer pricing documentation must be prepared and what needs to be considered and contained within the documentation to meet the “reasonably arguable position” standard to mitigate the impact of penalties if ATO compliance action results in transfer pricing adjustments. Documentation must: (1) be contemporaneous; (2) be maintained by the Australian entity or readily available to it, in English (or readily convertible to English); and (3) explain how the rule applies and best achieves consistency with relevant guidance material.

Complementing this draft ruling are “practice statements” explaining the process for compiling transfer pricing documentation (including a new five step process, and the process around determining liability to and assessment and/or remission of penalties). Both practice statements identify conditions when a “reasonably arguable position” is required and will be accepted by the ATO to support the identification, or otherwise, of a transfer pricing benefit.

Read an April 2014 report prepared by the KPMG member firm in Australia: Transfer pricing reconstruction provisions and documentation requirements

Contact a tax professional with KPMG's Global Transfer Pricing Services.

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