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Transfer pricing

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Australia continues to bolster its transfer pricing regime, enhancing the alignment of those provisions with OECD best practice and guidance.  The OECD guidance material is relevant for determining the arm’s length conditions in respect of multinational enterprises’ cross-border dealings.

Australia’s transfer pricing legislation was amended in June 2020 to refer to the OECD’s 2017 transfer pricing guidelines, with retrospective application from 1 July 2017.  The changes emanate from OECD BEPS Action Plan recommendations to improve the alignment of taxation and value creation.

The ATO states that disputes are usually in grey areas such as transfer pricing and the borderline between acceptable tax planning and tax avoidance.  Businesses with related party international dealings may have their transfer pricing reviewed or audited by the ATO, with the possibility of pricing adjustments and penalties.

The more significant and broader the scope of a business's international dealings with related parties, the ATO state they are more likely to review those dealings — and businesses with significant levels of dealings whose tax performance is low compared to industry standards are at the greatest risk of review.