On 17 December 2014, as part of a new Transfer Pricing guidance package, the ATO released a practice note outlining its new approach to transfer pricing record keeping. This was followed on 22 December by an online guide entitled ‘Simplifying Transfer Pricing Record Keeping’.
Before relying on this guide, taxpayers must consider all relevant ATO criteria and definitions. They can then disclose their eligibility and opt in to the simplified record keeping scheme by notifying the ATO through their International Dealings Schedule. Whilst exercising this option does not ‘waive the operation of the law’, it does mean the ATO will not allocate compliance resources to examine the taxpayer’s records which are subject to the disclosed option.
There are specific criteria for each category covered by the guide, but generally taxpayers will not be eligible if they have derived sustained losses, undergone a restructure within the year, or conducted related-party dealings with entities in specified countries. See below for a broad overview.
Small business taxpayers
Businesses with an annual turnover of up to $25 million will not be able to exercise the option of simplifying if they have related-party dealings royalties, licence fees or research and development arrangements, or specified service related party dealings greater than 15% of their turnover. Additionally, they cannot be distributors. The option is not applicable to related party financial transactions and international related-party dealings (IRPDs) of a capital nature.
Distributors with a turnover of up to $50 million who do not have related party dealings involving royalties, licence fees, or research and development agreements and do not have a profit before tax to turnover ratio of less than 3% are eligible to opt in. However international related-party financial transactions and IRPDs that are capital in nature are not covered by the option.
Intra-group services up to $1 million are eligible, as are some above $1 million but:
- for services you receive, the total amount charged must be no more than 15% of the total expenses or
- for services you provide, the amount must be no more than 15% of the total revenue. Additionally, the mark-ups on the services need to be at least 7.5% for those provided or at most 7.5% for those received. Exclusions apply to specific IRPDs.
Those with a loan balance of less than $50 million throughout the financial year are able to opt in if their interest rate is in line with the Reserve Bank of Australia’s relevant indicators and their funds provided under the loan, and their associated expenses are paid in Australian dollars. Exclusions apply however, to some IRPDs and other related-party deals.
The new, simplified approach will be introduced for an initial, three year period, during which time its use will be carefully monitored.
If you would like to know how the revised approach applies to your specific circumstances or need assistance with your transfer pricing, please contact your local Accru advisor.