Australian entities that meet certain requirements can shortcut the usual lengthy and expensive transfer pricing record keeping process.
The Australian Taxation Office's (ATO) transfer pricing record keeping requirements are known for being quite onerous and expensive. Companies typically need to call upon specialised accountants to carry out a detailed study involving comparisons with competitor arm's length pricing methodologies for benchmarking purposes. However, in some circumstances Australian entities are able to take a shortcut using simplified transfer pricing record keeping (STPRK).
What is transfer pricing documentation?
Transfer pricing (TP) documentation needs to be prepared and regularly updated by Australian entities which have international related party dealings (IRPDs). They must demonstrate – through detailed TP documentation – that the conditions of the IRPDs are consistent with arm's length conditions so that the taxpayer does not receive a "transfer pricing benefit."
The TP documentation requirements are quite burdensome and specify, amongst other things, that:
- the documentation is prepared in the same time period as the transaction
- the way the relevant TP provisions apply to the entity's IRPDs are explained
- the documentation explains why the specific application of the TP provisions to the entity's IRPDs best achieves consistency with the relevant guidance materials (eg. 2017 OECD Transfer Pricing Guidelines).
In practice this means the TP report must contain detailed information about alternative pricing methodologies and actual pricing and/or margins charged by independent parties operating in the same industry under similar conditions, so that IRPDs can be appropriately benchmarked.
Reducing the compliance burden with STPRK
STPRK is an administrative 'safe harbour' offered by the ATO to businesses which meet certain strict criteria.
To be eligible for STPRK, Australian entities must satisfy eligibility criteria for one of the following seven simplified record-keeping options:
- small taxpayers
- low value adding intra-group services
- low-level inbound loans
- technical services
- low-level outbound loans.
The criteria differ depending on which of the options apply. For example, one of the eligibility conditions for the 'small taxpayers' option above is that local turnover is less than AUD 50 million and IRPDs do not include royalties above a certain threshold.
The ATO will generally not allocate compliance resources to qualifying entities beyond reviewing their eligibility for STPRK. The entity would then only need to keep simple documentation that substantiates their eligibility.
Talk to us
TMF Australia can help companies assess their eligibility for simplified transfer pricing record keeping. Our in-country accounting and tax experts can:
- review your business activities
- provide guidance on how to reduce the TP documentation burden whilst remaining compliant
- prepare the necessary simplified documentation demonstrating how eligibility criteria are met.
Start-ups or recently established businesses in Australia can particularly benefit from our expertise. Need more information? Contact us today.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.