As tax rates differ between countries, there is a natural tendency for some businesses to allocate more profits in lower tax jurisdictions. We can help support and manage transfer pricing for your business.
Transfer pricing is a key consideration for international groups operating across multiple countries as the methodology adopted will have a direct impact on their tax liability and therefore the bottom line.
International groups inevitably have intra-group related party transactions, and transfer pricing is the method used to allocate profit between different group entities that operate in different countries.
Types of intra-group transactions include
- Management fees and other cross charges
- Licence fees and royalties for use of IP
- Stock purchases
As tax rates differ between countries, there is a natural tendency for some businesses to allocate more profits in low tax jurisdictions.
The resulting distortion of what should have been commercial and arm-length dealings has resulted in transfer pricing becoming a major area of focus for governments and tax authorities worldwide, with the OECD countries undertaking the “Base Erosion and Profit Shifting” (BEPS) project in order to address this matter.
The Australian context
Transfer pricing is an area of ongoing Australian Tax Office (“ATO”) review as it moves to protect tax revenues and prevent profits from being shift offshore via non-arm’s length dealings.
The recently introduced transfer pricing rules in Australia require related parties to undertake transactions with each other under “arms-length conditions”.
This is regarded as having more reach and therefore more onerous to comply than with the previous rules which required “arms-length profits”.
An automatic 25% penalty could apply if the ATO makes a transfer pricing adjustment and the taxpayer does not have contemporaneous (i.e. concurrent) evidence that the arms-length conditions requirement is satisfied. Such adjustment can potentially be very large given the quantum of some related party transactions, and is therefore a major business risk that must be addressed.
How we help
Given above, it is of vital importance that all international groups with related party transactions build a sound transfer pricing model that specifically addresses the Australian requirements.
It is usually not sufficient to merely adopt head office transfer pricing methodology and documentation as it would likely be prepared to comply with requirements from an overseas jurisdiction.
Azure Group offer the following transfer pricing services:
- Assist in the design of the transfer pricing methodology
- Implement transfer pricing operationally inside accounting systems
- Support your transfer pricing documentation requirements
- Proactively support you with transfer pricing audits in Australia
- Review and advise on transfer pricing and Intellectual property
- Negotiated Advance Pricing Agreements with the ATO