Proverbially, as hindsight is 20/20, this is an auspicious year to keep ahead of the Simplified Transfer Pricing Record-Keeping options (the STPRK Options) outlined in the ATO’s Practical Compliance Guideline 2017/2 (PCG 2017/2).
The STPRK Options are a safeguard offered to eligible entities – not against the application of transfer pricing rules – but against any audit or review from the ATO of the transfer pricing documentation kept.
On 11 September 2019, the ATO amended the required interest rates for the 2020 income year under the PCG 2017/2 eligibility criteria for the STPRK Options. Together with these new required rates, the following should be remembered for Australian economic groups providing inbound and/or outbound loans within the group.
The STPRK Options are available for related party cross-border loans where:
- the combined cross-border loan balance for the group is AUD 50 million or less;
- the loan agreement specifies the currency of the loan to be AUD (i.e. the currency exchange risk is not borne by Australia) and the associated expenses (e.g. borrowing costs) are paid in AUD; and
- the Australian entity has seen profit in the current or one of the previous 2 years;
- there has been no restructure during the past year;
- the entity has assessed compliance with the transfer pricing rules; and
- the interest rate of each loan for each of the income years that the loan is in effect is:
- For low-level inbound loans (i.e. Australia borrows) no more than 2.33% (3.76% in 2019); or
- For low-level outbound loans (i.e. Australia lends) no less than 2.33% (3.76% in 2019).
If any of the above points is not met, your entity is exposed to audits and/or reviews by the ATO on your transfer pricing records. To date, Transfer Pricing Manuals are the only recognised way to appropriately keep records for transfer pricing purposes. These need to be prepared before the lodgment of the relevant Income Tax Return.