Government Releases New Transfer Pricing Measures to Attack Multinationals

K&L Gates LLP

On 13 February 2013, the Federal Government introduced legislation into Parliament that will significantly broaden the circumstances in which Australia's transfer pricing rules may be applied.

The legislation will come into force on 1 July 2013 or later on the date of Royal Assent.

Overview of Transfer Pricing

Australia's transfer pricing provisions aim to prevent multinational enterprises shifting profit from the Australian tax jurisdiction by non-arm's length dealings. Profit shifting may occur, for example, where a foreign resident supplies goods to its Australian resident affiliate and the Commissioner considers that the consideration paid was not an arm's length consideration. Where the transfer pricing provisions are applied, international transactions between related parties are deemed to occur on the same pricing terms as would apply if the entities were independent parties dealing at arm's length with each other.

Australian law does not prescribe a specific methodology for ascertaining what will constitute arm’s length consideration. The Organisation for Economic Co-operation and Development (OECD) Guidelines indicate a hierarchy of methods that can be used to determine an appropriate transfer price, but they do not dictate the use of any one or more appropriate methods. The guidelines simply indicate the suitability of using a particular methodology in given circumstances. Broadly, there are two groups of methodologies - the "traditional" transaction methods, and the profit methods. The Australian judiciary has favoured transactional methods in ascertaining an arm's length consideration.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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