Australia: BEPS and transfer pricing; comparison to Australian approach

Australia: BEPS and transfer pricing

The OECD’s base erosion and profit shifting (BEPS) final reports that focus on transfer pricing are comprised of a number of updates to different parts of existing OECD transfer pricing guidance. In particular, BEPS Actions 8-10 are designed to provide that transfer pricing outcomes are aligned with value creation, and BEPS Action 13 (country-by-country reporting) will enhance transparency.

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The OECD’s transfer pricing-related guidance—with its strong focus on substance versus form and its consideration of when groups engage in transactions that would not, or would only rarely occur between third parties—is catching up with (and potentially overtaking) Australia’s already strengthened approach to transfer pricing rules under the newly introduced sub-division 815-B-D. Australia has demonstrated its eagerness to adopt these measures with a bill for country-by-country reporting pending before Parliament (and possibly being swiftly enacted and incorporated into law).

OECD’s transfer pricing guidelines

The guidance provided under BEPS Actions 8-10 would allow for amendments to the OECD’s transfer pricing guidelines, including the following: 

  • Chapter I - Risk and re-characterisation: Addresses the capacity to assume and control risk, the relationship between contractual arrangements and conduct, and the circumstances in which transactions that lack commercial rationality can be disregarded
  • Chapter II - Intra-group commodity transactions: Includes additions to address applicable methods (generally the Comparable Uncontrolled Price (CUP) method) to commodity transactions
  • Chapter V - Country-by-country (CbyC) reporting: Provides a framework for documentation, including the CbyC report, Master File and Local File, and how these will be provided to and shared by tax authorities
  • Chapter VI – Intangibles: Clarifies the definition of intangibles, including “hard to value intangibles” (HTVI); discusses ownership of intangibles; and transactions involving “development, enhancement, maintenance, protection and exploitation” (DEMPE) of intangibles
  • Chapter VII - Intra-group services: Including guidance on a safe harbour for low value-adding services
  • Chapter VIII - Cost contribution arrangements (CCAs): Addresses the value of contributions to CCAs and the substance of CCA participants

 

Read an October 2015 report prepared by the KPMG member firm in Australia: Transfer Pricing in a BEPS world

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