Simplifying Transfer Pricing – updated ATO guidance

Simplifying Transfer Pricing – updated ATO guidance

Jeremy Capes, Tim Keeling, and Nicholas McGann, review the recently released ATO guidance on simplified transfer pricing record keeping options that reduces the Australian transfer pricing documentation compliance burden for certain taxpayers.

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Wooden slatted path

As the late, great, German-born American physician and author Martin Henry Fischer put it, “Knowledge is a process of piling up facts; wisdom lies in their simplification."

Taking inspiration from Fischer’s words, the Australian Taxation Office has released Practical Compliance Guideline (PCG) 2017/2 Simplified transfer pricing record keeping options, which updates previously released guidance that reduces the Australian transfer pricing documentation (TPD) compliance burden for certain taxpayers and/or international related party dealings (IRPDs).

As a recap, subject to the satisfaction of certain eligibility criteria, the PCG allows small taxpayers (less than $25m in revenue), distributors (less than $50m in revenue) and taxpayers with a low materiality of IRPDs (and in particular intra group services and cross border loans) to apply the simplified transfer pricing record keeping (STPRK) options.

Reduced TPD requirements

Whilst under self-assessment, taxpayers must still undertake some level of analysis to assess their compliance with the transfer pricing rules, to the extent taxpayers can apply the STPRK options, PCG 2017/2 confirms that the ATO will not dedicate resources to qualifying taxpayers/IRPDs. This means that taxpayers may enjoy a reduced documentation compliance burden (subject to the review of the STPRK options available going forward in September 2017) in applying the options.

Potentially reduced CbCR obligations

Importantly, for taxpayers subject to Country-by-Country Reporting (CbCR) requirements, the use of certain STPRK options can result in taxpayers receiving an exemption from submitting Part A and/or Part B of the ATO’s Local File. As a result, taxpayers can potentially reduce or avoid the burden of collating and submitting key information and source documents to the ATO.

In a world of increasing complexity, it’s nice to see some simplicity emerge. Given the potential benefits that can result from the use of the STPRK options, taxpayers are well advised to consider the options.

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