The ATO’s ‘Simplifying Transfer Pricing Record Keeping’ (STPRK) options allow qualifying entities to opt-out from Australia’s full transfer pricing requirements. However, eligibility criteria are strict, documentation is required to prove your eligibility, and the ATO has changed its guidance several times in the past few years. Below are the ATO’s 2019 guidelines. For the latest requirements and eligibility criteria, see our 2021 Simplified Transfer Pricing Record Keeping Update
The 2019 guidelines for Simplified Transfer Pricing Record Keeping
The ATO’s 2019 Guide outlines seven transaction types or activities identified as low risk for International Related Party Dealings (IRPDs) and specifies criteria for businesses to self-assess their eligibility:
- Small taxpayers
- Low value adding intra-group services
- Low-level inbound loans
- Low-level outbound loans
- Technical services.
The former management and administration option has been consolidated into the new low-value-adding intra-group services option which aligns with the OECD’s simplified approach to low-value -adding intra-group services dealings. The changes apply to income years beginning on or after 1 July 2018 (or substituted accounting period) but taxpayers are still able to apply the options as they existed in the previous version for their first income year commencing on or after 1 July 2018 (or substituted accounting period).
Note that generally businesses will not be eligible for any options above if they have derived sustained losses or undergone a restructure within the year.
For businesses that are eligible for options 1, 2 or 3 above (i.e. small business taxpayers, distributors and materiality), these options do not reduce the documentation requirements for their related party royalties, licence fees and R&D arrangements; financial transactions and IRPDs of a capital nature.
Summary of 2019 eligibility criteria
1. Small business taxpayers
Businesses with an annual turnover of up to $50 million (increased from $25 million) are able to opt in if their related-party dealings involving royalties, licence fees or research and development (R&D) arrangements are not greater than the combined threshold of $500,000 nor having specified service related party dealings greater than 15% of their turnover. Additionally, they cannot be distributors.
Distributors with a turnover of up to $50 million who do not meet the combined threshold of $500,000 in 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.
Companies with IRPDs of not more than 2.5% of the total turnover of their Australian economic group are eligible for this option if their total turnover is not more than $100 million nor having related party dealings involving royalties, licence fees or research and development arrangements greater than the combined threshold of $500,000.
4. Low Value Adding Intra-group services
Intra-group services up to $2 million are eligible, as are some above $2 million but note that 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. The total expenses on these services cannot be more than 25% of your pre-intra group services profit. Additionally, the mark-ups on the services need to be at least 5% for those provided or at most 5% for those received. However, this option is not applicable to other IRPDs.
5. Low-level inbound loans
Those with a loan balance of less than $50 million throughout the financial year are able to opt in if the annual interest rate for each of their loans is not more than 3.76% in FY2019 and their funds provided under the loan and their associated expenses are denominated in Australian dollars. This option is only applicable to eligible inbound loans but not other related-party dealings.
6. Low-level outbound loans
Those with a loan balance of less than $50 million throughout the financial year are able to opt in if the annual interest rate for each of their loans is not less than 3.76% in FY2019 (or 3.79% in FY2018) and the funds provided under their loans and their associated expenses are denominated in Australian dollars. Similarly, this option is applicable to eligible outbound loans only.
7. Technical services
If the income from and expenditure on technical services is not more than 50% of the total IRPDs of the taxpayer’s Australian economic group, this option is available providing the mark-up for services received is not more than 10% and the mark up for services rendered is at least 10%. As for the previous option, other IRPDs are excluded.
Before relying on the ATO ‘Simplified Transfer Pricing Record Keeping’ Guide
Businesses must consider all relevant ATO criteria and definitions, then disclose their eligibility and opt in to the simplified record keeping scheme by notifying the ATO through their International Dealings Schedule (IDS) or Country-by-Country (CbC) Local File if applicable.
See our article Australia’s transfer pricing requirements 2018 for an overview of Australia’s transfer pricing rules and our January 2018 article on Simplified Transfer Pricing for the ATO’s earlier STPRK guidance.
Accru Felsers assists many international business (especially German, Chinese, Japanese and Australian) with their transfer pricing and has a extensive experience applying the STPRK options. Please contact Glenda Nixon or Maggie Chang, our transfer pricing specialists, if you have any questions or would like our assistance.