In our fast-paced world, our experienced team can ensure you maximise your transfer pricing opportunities, while also ensuring that you meet the ever-evolving compliance requirements.
What is Transfer pricing (TP)When two entities that are part of the same group undertake any type of cross-border trade with each other, they need to establish a price for that transaction, as if they were unrelated parties and the transaction was a ‘real’ negotiation, conducted at ‘arms length’. The price that one entity then pays is referred to as the ‘transfer price’. TP rules and regulations aim to ensure that an unfair income tax outcome has not been derived.
The changing landscape of TP
The TP landscape has been constantly evolving over the last decade, with stricter regulation and governance introduced in Australia as well as globally. As part of this process, our team work closely with clients to help identify ways in which more cost-effective set-ups for international transactions can be put in place.
The COVID-19 pandemic has also made a significant impact on many businesses that are facing a change in their global supply chains. These changes have also driven TP to become an integral part in supporting business leaders to make key commercial decisions that will ultimately support business growth / changes, while also mitigating compliance risks.
Wider coverage of TP
TP used to focus narrowly on whether the ‘pricing’ for transactions between International Related Parties (IRPs) is arm's length. Nowadays, TP is no longer limited to pricing but places greater emphasis on ‘conditions’ in connection with commercial or financial relations between IRPs. In other words, there is greater focus on the commerciality of the arrangement and terms agreed upon between the parties. This could potentially result in a transaction being 'reconstructed' from where it actually stands.
With the wider coverage and increased complexity, taxpayers involving IRP dealings are expected to ‘self-assess’ and prove their dealings conform with the arm's length principle.
TP in Australia
Australia is highly dependent on corporate income tax compared to the other OECD countries. As multinational enterprises (MNEs) involving IRP dealings are a key contributor to Australia's corporate income tax base, Australian Taxation Office (ATO) places a continuous focus on TP.
TP in Australia could be subject to an ATO review for up to 7 years. As evidenced by significant Australian litigation cases recently – Chevron, Glencore and Singtel, the risk of TP adjustments and penalties could be substantial.
Managing TP properly not only helps enhance tax certainty, but also enables businesses to direct time and resources more efficiently on business commitments (not on ATO reviews).
TP around the globe
TP administration has been heightening globally with the implementation of OECD Base Erosion and Profit Shifting (BEPS) initiatives since 2013.
While MNEs’ business and financial information is under wider and potentially public scrutiny through Country-by-Country Reporting, they now face new opportunities arising from OECD’s ‘Two-Pillar’ international tax reform project (BEPS 2.0), where TP will play a key part in substantiating whether the profit allocated in different jurisdictions aligns with value creation in the global supply chain – a particularly relevant consideration for MNEs under restructuring and value chain transformation.
Our practical and proactive, cost-effective solutions:
TP in Base Erosion & Profit Shifting (BEPS)
- Analysis of commercial activities, intangibles and profit allocation to support business value chain structuring / transformation
- Collaborating with our international offices to help businesses respond to BEPS 2.0 changes
- Country-by-country reporting (via SW in-house software)
Operational TP planning
Design TP policies and assistance with policy implementation (including system and agreement reviews) to help businesses achieve their inbound / outbound commercial strategies
Advance pricing arrangement (APA)
Assistance with unilateral and bilateral APAs including developing strategies for the timely negotiation and cost-effective implementation
Continuous learning opportunities
- Client specific tax and TP training
- English & Mandarin tax update seminars/webinars
- Insights from ATO Working group
- Ongoing tax and TP alerts
TP compliance
- s815 ‘audit-ready’ TP documentation for Australian subsidiaries/branches
- Globalised documentation for Australian parents
- Assistance with International Dealings Schedule, Reportable Tax Position, Practical Compliance Guideline
Whether your team is experienced and requires an independent view, or whether you are just starting out, or your business is changing and growing, our team is well placed to assist you.
