On 2 June 2014 the Federal Government published a report by the
Inspector General of Taxation ("IGT") on the Australian
Taxation Office's ("ATO's") management of
transfer pricing matters.
The IGT found the ATO's capability to manage transfer
pricing matters 'wanting' in a number of important areas.
Whilst the 'headline' numbers look excellent (18
recommendations of which the ATO "agreed" with 17 [in
whole or in part or in principle]) important considerations remain.
This is so as 6 of the IGT recommendations have only been agreed to
in part and the absence of agreed timelines to address some of the
recommendations, to which the ATO did agree, is unfortunate.
Perhaps most notably, the ATO has refused to agree that transfer
pricing decision-making authority should fall to officers that have
a "...solid grounding in transfer pricing..." This
coupled with the fact the ATO has not agreed to another IGT
recommendation, that the ATO establish an "overseeing
body" to consider transfer pricing issues at key stages during
compliance activities will, in our opinion, result in significant
and unnecessary compliance costs to taxpayers. In addition or in
the alternative, Government may fail to collect revenue, whether
inadvertently or otherwise, where inexperienced ATO personnel deal
with complex transfer pricing matters.
Insofar as smaller enterprises are concerned, there is much to
be disappointed with. The ATO response to the IGT recommendations
(aimed at relieving these smaller businesses from the more complex
transfer pricing compliance requirements) may be said to be
something akin to a lack of sincerity in addressing taxpayer
concerns. The IGT recommendations include: 'safe harbours',
simplified transfer pricing documentation and the possibility of a
simplified International Dealings Schedule ("IDS") for
"Small and Medium Enterprise" ("SME")
taxpayers. In our opinion, some may see the ATO response to these
IGT recommendations as being disingenuous as there is no agreed
timetable for implementation and many have been on-foot for
It is noteworthy that the IGT has drawn, not insignificantly, on
the PwC Legal report to the ATO on its administration of the
Advance Pricing Arrangement ("APA") Program. A number of
the PwC Legal recommendations flow though into the IGT report. The
IGT report includes, comments, recommendations or references to or
from the PwC Legal report covering-off on some of the PwC Legal
recommendations which included: "...all key transfer pricing
decisions should be made by a specialist within the (ATO) TP
Network..."; the recommendation for the publication of
"...safe harbours or benchmarks on an industry basis for use
by SMEs...: and the recommendation for an increased
"....investment in, and the structure of, the training and
development of ATO personnel." The great pity is the
'currency' of these 'old' recommendations,
recommendations made to the ATO in May 2008.
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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