• Service: Tax, Global Transfer Pricing Services, International Tax
  • Type: Regulatory update
  • Date: 3/14/2014

Australia - Steps to prepare for new transfer pricing regime 

March 14:  Most groups will already have commenced an accounting period under Australia’s new transfer pricing self-assessment regime.

The new rules require a taxpayer to consider the substance and form of each transaction. While 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 a self-assessment position and mitigate potential penalties.

There are two key practical steps to 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 need to cover the key terms likely to be included in similar agreements between independent parties.
  • Substance - The Australian Taxation Office (ATO) has new authority to reconstruct transactions, when the substance of the transaction differs from the form.

KPMG observation

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 10-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 begin 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.

Read a March 2014 report prepared by the KPMG member firm in Australia: Practical steps to prepare for the new transfer pricing regime

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

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