Australian startups will often find Australia to be a small and quickly saturated market, and therefore turn their eyes toward the rest of the world for an expansion of their customer base.
As we covered in our previous article on transfer pricing for foreign subsidiaries & foreign branches, activities overseas can easily create a number of complexities for unsuspecting businesses.
But I am just a small startup, do I really need to comply with all these requirements?
There is unfortunately no carve-out from the Transfer Pricing laws. With cross-border activities being a core focus of the ATO’s review activity, it is too easy for startups to unintentionally expose themselves to costly fallouts.
If you want to plan for success, you need to make sure that you do so on solid stable basis. We have encountered many startups that brushed away concerns of advanced taxation issues, only to see their brilliant profit-making enterprise turned to dust overnight when the ATO confirmed that there were additional hidden tax costs. You would not enter a market without checking for competitors; don’t enter the international platform without the appropriate level of tax coverage!
There is no miracle solution where you can offshore your activities and reduce your tax/compliance obligations. On the contrary: by operating in 2 countries rather than 1, you are likely to see you compliance requirements more than double…
We often warn our clients of that very danger, and recommend a ‘one new country at a time’ approach of analysing the implications of trade in each country before proceeding to the next.
Simplified Transfer Pricing Record-Keeping (STPRK)
While the ATO cannot exempt the company from having to comply with the record-keeping requirements, they provide an assurance that they will not perform a review of the transactions and arrangements, where it qualifies for STPRK under any of the following categories:
- Small taxpayer (different to being a Small Business Enterprise);
- Low value-adding intra-group services;
- Technical services.
Also, specifically for loan dealings, additional categories exist:
- Low-level inbound loans;
- Low-level outbound loans.
Of note, you will be unlikely to qualify under any of these categories if:
- You show 3 or more consecutive years of losses;
- Royalties, license fees and research & development from/to foreign related-parties exceed $500k; or
- Significant core activities of your company are conducted by foreign related parties.
Furthermore, royalties, license fees and research & development arrangements will never be covered under STPRK.
The criteria for eligibility for all these categories change every year (see our articles on the 2019 rules and the 2020 updates). Therefore, make sure not only that your transfer pricing requirements are looked after originally, but also that they are reviewed annually for changes in legislation or in your own activities.
Accru is a strong supporter of startups and has successfully helped many businesses take their first steps in Australia and grow to the next stage overseas with great success. We regularly assist our startup clients with determining their eligibility under STPRK, or with the drafting of a Transfer Pricing Manual if ineligible.
Read about our transfer pricing services or contact your local Accru advisor for initial advice on expanding your business overseas.