1. TP legislation/guidelines
Australia Tax Office (“ATO”) has issued numerous TP rulings to compliment existing TP legislations.
2.TP documentation required to be filed with tax return
Taxpayers should maintain contemporaneous documentation. However, it is not required to be filed with the tax return.
3. TP audits done by tax authority
ATO is currently extending its focus for TP audits to include audits on small and medium enterprises.
4. Advance Pricing Arrangement
Advance Pricing Arrangements are available.
5. Mutual Agreement Procedures
Australia is part of the Pacific Association of Tax Administrators and Mutual Agreement Procedures are available.
6. Basis to recover intra-group service charges
Where certain conditions are met, the ATO accepts a cost plus mark up of 5% to 7.5% for non-core or routine services. Where costs of all intra-group services (core and non-core) supplied or acquired are not more than AUD$500,000, the ATO also accepts the above mark up rate.
7. Cross border management fee charges
Taxpayers are allowed deduction for such charges from overseas holding company or head office provided they are charged on arm’s length basis that is commensurate with the services provided. If a cost plus methodology is used TP documentation should substantiate the mark up applied. Withholding tax does not apply to such management charges.
8. Inter-company loans
Lender must determine and review the arm’s length credit worthiness and financial independence of borrower. Interest expense is deductible provided arm’s length and thin capitalization rules are satisfied. TP rules would apply regardless that thin capitalization rules have already been satisfied.
There is a 10% withholding tax on interest payments made to non-residents, subject to treaty provisions.
9. Transfer pricing penalties
General tax penalties will apply. The penalty is 50% of tax avoided if the sole and dominant purpose is to pay no or less tax. This can be reduced to 25% if the taxpayer has a reasonably arguable position. If there is no sole or dominant purpose to pay no or less tax, the penalty will be 25% of the tax avoided. This may be reduced to 10% if voluntary disclosure is made by the taxpayer before an ATO audit.
Transfer pricing adjustments can occur at any time and is not subject to any limitation period.
Updated: June 2010
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