Peters Advisors LLC regularly updates its clients on new developments involving transfer pricing and tax valuation, and provides our insights regarding the pragmatic implications of these changes for managing their business.
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TRANSFER PRICING NEWS |
Recent Development:
On March 16, the Australian government released the first stage of the transfer pricing reforms that were announced on November 1, 2011. The exposure draft of "Tax Laws Amendment (2012 Measures No. 3) Bill 2012: Cross-border transfer pricing" will introduce amendments to Australian law in relation to transfer pricing rules, and would apply retroactively to income years beginning on or after July 1, 2004.
The stated aims of the new legislation are to bring Australia's transfer pricing rules more into line with the OECD Guidelines and to ensure that transfer pricing provisions in Australia's tax treaties are able to be applied independently of Australia's transfer pricing rules set out in Division 13 of the Income Tax Assessment Act, 1936. Australia's current transfer pricing rules focus primarily on transaction-based transfer pricing methods and consequently provide for the ATO to analyze transactions and make adjustments on that basis. The objective of the proposed legislation is to ensure that the overall profits of the parties reflect an arm's length outcome given their economic contributions.
Pragmatic Implications:
There is the belief that this proposed legislation stems, at least in part, from the court decision in SNF (Australia) Pty Ltd v. Comr in which the court upheld the taxpayer's application of the CUP method, even though the taxpayer had incurred losses in eleven consecutive years. In that case, the ATO argued that a continuously loss-making company was not meeting the internationally accepted arm's length standard, regardless of the demonstration of market pricing, and that in order to be consistent with the OECD, the focus should be placed on what profit a party would earn when operating at arm's length.
It remains to be seen whether the legislation in its final form and practical application would contradict the arm's length standard and determination of the most appropriate method as set out in the Division 13 transfer pricing legislation. However, taxpayers should ensure that their transfer pricing documentation is robust, particularly where profitability is low and transfer pricing methods other than the TNMM are employed to establish the arm's length nature of the transactions, and consider the appropriateness of transfer pricing methods that result in losses or marginal profitability for the Australian entity.
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ABOUT US |
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Peters Advisors LLC is an independent provider of transfer pricing and tax valuation services. We have advised a significant number of the world's leading multinational corporations on transfer pricing and tax valuation matters and have worked both in an in-house and advisory capacity. We work together with our clients to deliver outstanding results from focused, insightful, and pragmatic advice. |
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We inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
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