Global

Details

  • Service: Tax, Global Transfer Pricing Services, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 10/1/2013

Australia - Focus on transfer pricing items in BEPS project 

October 1: The Organisation for Economic Cooperation and Development (OECD) in July 2013 released an Action Plan on Base Erosion and Profit Shifting (BEPS) identifying 15 specific actions to address base erosion and profit shifting and setting deadlines to implement these actions. Any changes to the OECD transfer pricing guidelines, arising from the BEPS project, would result in changes to Australia’s new transfer pricing rules, contained in Subdivisions 815-B to D of the Income Tax Assessment Act 1997.

Given the Australian government’s recent focus on transfer pricing and BEPS, it would not be unreasonable to envisage that income tax regulations could be made by the Australian authorities soon after any amendments to the OECD transfer pricing guidelines are finalised.


The following discussion outlines transfer pricing focus areas in the BEPS action plan, and then addresses potential implications for the Australian transfer pricing rules.

Transfer pricing is key focus in OECD’s Base Erosion and Profit Shifting (BEPS) project

The Organisation for Economic Cooperation and Development (OECD) presented its BEPS project to the G20 Finance Ministers. The BEPS “action plan” identifies 15 specific actions needed to address base erosion and profit shifting and sets deadlines to implement these actions.


It is clearly evident that concern about non-arm’s length transfer pricing practices by multinational enterprises is a key focus area of the BEPS project as five of the 15 action items are either directly targeted at, or have significant crossover with, transfer pricing. Those actions are summarized below.

Intangibles

Key focus areas—


  • Provide broad and clear definition of intangibles
  • Determine whether profits associated with intangibles are allocated in accordance with value-creation
  • Develop transfer pricing rules or special measures for hard-to-value intangibles
  • Update guidance on cost contribution arrangements

Deliverable - Changes to the OECD’s transfer pricing guidelines (OECD TP Guidelines) and possibly to the OECD’s model tax convention (OECD MTC)


Timing - September 2014 and September 2015

Risks and capital

Key focus areas—


  • Counter inappropriate transfer of risks, or allocation of excessive capital, among group companies
  • Adopt transfer pricing rules or special measures so that inappropriate returns will not accrue to an entity solely for contractually assuming risk or providing capital

Deliverable - Changes to the OECD TP Guidelines and possibly to the OECD MTC


Timing - September 2015

Other high-risk transactions

Key focus areas—


  • Transactions that would not (or would only very rarely) occur
  • Adopt transfer pricing rules or special measures to clarify when re-characterisation can occur; clarify transfer pricing methods / profit splits in the context of global value chains, and management fees and head office expenses

Deliverable - Changes to the OECD TP Guidelines and possibly to the OECD MTC


Timing - September 2015

Limit base erosion via interest deductions and other financial payments

Key focus areas—


  • Evaluation of effectiveness of different types of interest limitations
  • Aim is to prevent excessive interest deductions
  • Develop transfer pricing guidance regarding pricing of related-party financial transactions, finance and performance guarantees, derivatives (including internal derivatives used in intra-bank dealings) and captive and other insurance arrangements

Deliverable - Changes to the OECD TP Guidelines


Timing - December 2015

Documentation

Key focus areas—


  • Develop rules on transfer pricing documentation
  • Rules to enable disclosure of global allocation of income, economic activity, and taxes paid among countries on a common template

Deliverable - Changes to OECD TP Guidelines and Recommendations regarding the design of domestic rules


Timing - September 2014

Follow-up OECD documents, developments

On 30 July 2013, the OECD issued the following documents for comment—


  • Revised Discussion Draft on Transfer Pricing Aspects of Intangibles
  • White Paper on Transfer Pricing Documentation

Comments on both documents are due by 1 October 2013.

How soon might these developments affect my company?

While any changes to the OECD TP Guidelines arising from the BEPS project would require Australia’s government to issue income tax regulations requiring Australian taxpayers and the Australian Taxation Office (ATO) to have regard to such changes for purposes of Australia’s new transfer pricing rules (Subdivisions 815-B to D of the Income Tax Assessment Act 1997), note that the deliverables in two key areas (intangibles and documentation) are only 12 months away.


Given the Australian government’s recent focus on transfer pricing and BEPS, it is not unreasonable to envisage that regulations would be made soon after any amendments to the OECD TP Guidelines are finalised, so that taxpayers and the ATO would be required to have regard to such changes for purposes of preparing their income tax returns.

How can I prepare?

To prepare for coming changes, taxpayers need to:


  • Stay up-to-date with international developments relating to BEPS
  • Review existing transfer pricing documentation to identify potential material gaps
  • Analyse proposed international related-party dealings with an eye to whether they are likely to conform with potential changes
  • Discuss these developments with a KPMG transfer pricing specialist


For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services practice in Australia:


Damian Preshaw

+613 9288 5658




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