Transfer Pricing
Country Summary
Australia
This document summarizes the transfer pricing record keeping and guidelines set by the Australian Taxation Office (ATO) in 2014. These guidelines offer simplified transfer pricing rules for Small and Medium Enterprises (SMEs), focusing on small taxpayers, distributors, intra-group services, and low-level inbound loans. The ATO emphasizes aligning documentation complexity with tax risk and transaction size. It also outlines requirements for penalty protection and deadlines for filing various documentation, such as Country-by-Country reports. Additionally, the document highlights the penalties imposed for inadequate or untimely documentation.
Overview:
Simplified Transfer Pricing Rules Australia
In 2014, the Australian Taxation Office (ATO) introduced simplified transfer pricing rules, particularly beneficial for Small and Medium Enterprises (SMEs). These rules encompass small taxpayers, distributors, intra-group services, and low-level inbound loans.
Matching Documentation to Tax Risk
The ATO emphasizes the importance of aligning documentation complexity with the level of tax risk and the size of international related party transactions.
Penalty Protection and Filing Deadlines
To gain penalty protection, businesses must maintain records that establish a Reasonably Arguable Position (RAP) as a final document by the date of their tax return lodgment, due on July 15. Various documentation, including Country-by-Country reports, master files, local files, and CbC reports, must be submitted within specific deadlines, often online in XML Schema format.
Voluntary Compliance Beyond Statutory Requirements
Businesses may voluntarily create transfer pricing documentation, providing details of comparables and transfer pricing policies to demonstrate compliance with the arm’s length principle beyond basic statutory requirements.
Responding to ATO Requests
Typically, documentation needs to be submitted to the ATO only when an ATO transfer pricing documentation review is notified, preceding a potential audit. When the ATO requests transfer pricing documentation, the taxpayer usually has 28 days to submit it, and extensions are granted rarely.
Statute of Limitations and Double Tax Treaties
The statute of limitations for assessing transfer pricing adjustments is 7 years. This is an improvement from the era before 2013 when there was no statute of limitations for TP modifications. However, some double tax treaties may limit the adjustment period.
Mandatory Language and Notification
Documentation must be in English or easily convertible into English when requested by the ATO. Additionally, each entity within a multinational group tax resident in Australia must include specific information in their Master File/Local File, as per ATO requirements.
Record Keeping and Penalties
Maintaining transfer pricing documentation that aligns with related party transactions and arm’s length principles is strongly recommended for tax return lodgment. Penalties for incomplete or late filing can range from AUD 26,640 to AUD 555,000, depending on the nature of the offense and the time delay.