On 16 April 2014 the Australian Taxation Office ("ATO") published long-awaited draft guidance ("Guidance") in relation to several important aspects of Australia's new transfer pricing ("TP") legislation. The 'new' legislation was enshrined into our law on 29 June 2013; notably, Subdivision 815-B, 815-C and 815-D of the Income Tax Assessment Act 1997 ("ITAA 1997"). The aim of our legislation and the Guidance is to ensure application of the arm's length principle. The Guidance applies from 29 June 2013.
The guidance takes the form of two draft Taxation Rulings ("TR") and two draft Practice Statement Law Administration documents ("PSLA").
One ruling, TR 2014/D4, deals with TP documentation requirements if a taxpayer is to potentially limit the quantum of penalties that would otherwise apply in the event of an adverse TP adjustment. This ruling is supported by PSLA 3673 which explains the "documentation process" that the ATO prescribes as best practice. The new legislation imposes additional record keeping obligations upon those taxpayers that wish to avail themselves of the lower penalty thresholds.
The second ruling, TR 2014/D3, deals with the 'recharacterization' of a taxpayer's actual transactions. Whilst arguably there is a 'steep hurdle' to overcome if the ATO is to successfully prosecute such an approach, it is highly controversial as oftentimes there are no comparable transactions with arm's length parties simply because a parent company will generally only deal with a subsidiary. Significant TP controversy is expected in this area.
The final PSLA 3672 deals with how the ATO will apply the penalty provisions in the event of a TP adjustment.
The draft Guidance is severely "wanting" in a number of respects and Moore Stephens has lodged a submission with the ATO to this effect.
Attachments
ato_draft_guidelines_on_transfer_pricing.pdf
This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2014 Moore Stephens Australia Pty Limited. All rights reserved.
