Australia: Consultation on BEPS-related transfer pricing recommendations

Australia: BEPS-related transfer pricing

The Treasury today released a consultation paper concerning the transfer pricing recommendations within the OECD base erosion and profit shifting (BEPS) project, and requesting comments with respect to possible adoption of the new OECD recommendations in the context of the Australian tax system.

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According to the Treasury release, Australia’s transfer pricing rules are designed so that Australia receives an “appropriate share of tax” from multinational firms, and so that the tax on profits reflects the economic activity attributable to Australia using an arm’s length standard. Further, Australia’s transfer pricing law specifies that it is to be interpreted in a manner that “is best to achieve consistency” with the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2010).

In October 2015, the OECD’s report—“Aligning Transfer Pricing Outcomes with Value Creation”—focused on issues of appropriately allocating returns for risk, and capital functionality. The Treasury release states that adopting the new guidance would allow Australia to continue its “best practice” transfer pricing rules and help prevent multinationals from using excessing related-party payments to shift profits overseas.

The consultation paper requests comments with respect to adopting the new OECD guidance in the context of the Australian tax system. The request for comments focuses in particular on addressing issues related to the timing of implementation of the recommendations; guidance that may be required from the Australian Taxation Office (ATO) on the uptake of the recommendations; and any unintended consequences that may need to be addressed.  Comments are due by 26 February 2016.

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