Worldwide transfer pricing reference guide 2014

Australia
Taxing authority and tax law
Taxing authority: Australian Taxation Office (ATO).
Tax law:
Australia’s transfer pricing law is contained in:
• Division 13 of Part III of Income Tax Assessment Act 1936
• Subdivisions 815–A, 815–B, C and D of the Income Tax Assessment Act 1997
• Subdivision 284–E of the Tax Administration Act 1953
• Relevant provisions of double tax treaties
Applicability of legislation
Division 13 was enacted in 1982 and applies to income years that have commenced prior to 1 July 2013. Division 13 applies at the
Commissioners discretion and cannot be self-assessed.
Subdivision 815–A was enacted in 2012 and applies to income years commencing between 1 July 2004 and 30 June 2013. It operates
concurrently with Division 13 for transactions with related parties in countries which have a double taxation agreement with Australia.
Subdivision 815–A applies at the Commissioners discretion and cannot be self-assessed.
Subdivision 815–B applies to taxpayers with income years commencing on or after 1 July 2013. 815–B can be applied by the
Commissioner and must be self-assessed by taxpayers.
Recent changes
Subdivision 815–B, C and D were enacted in June 2013 and introduce some important changes to the transfer pricing rules. The key
changes as a result of Subdivision 815–B is:
• Introduction of a self-assessment regime, effectively requiring public officers to sign-off on the appropriateness of their transfer pricing
in order to satisfy their duties as public officer, and in certain circumstances the public officer may be liable to penalties
• Penalty regime linked to documentation, whereby preparing transfer pricing documentation is not compulsory; however failure to
prepare documentation results in a taxpayer not being able to establish a reasonably arguable position, which results in higher penalties
in the event of an ATO audit
• Extensive reconstruction provisions requiring taxpayers to go beyond the transactions in assessing their transfer pricing and providing
the ATO with extensive powers to substitute transactions that the ATO believes better reflects arm’s length behavior
• Provisions that effectively require a double test, where taxpayers have to assess the overall commerciality of their arrangements as well
as the pricing of individual transactions
Subdivisions 815–C applies to permanent establishments. The subdivision applies the arm’s length principle to permanent
establishments to ensure that the amount brought to tax in Australia by entity’s operating permanent establishments is not less than
it would be if the permanent establishment was a distinct and separate entity operating independently. The rules and requirements
contained in Subdivision 815–C apply in the same manner as those contained in 815–B.
Subdivision 815–D applies to partnerships and trusts using an analogous approach as found in 815–B and 815–C.
All Australian transfer pricing provisions are one-directional and only apply to increase a taxpayer’s tax liability.
Subdivision 284–E outlines transfer pricing documentation requirements for taxpayers for whom Subdivision 815–B or C applies.
Relevant regulations and rulings
The following transfer pricing rulings and other guidance in the form of tax determinations and ATO booklets has been published
by the ATO. The guidance is relevant for years starting before 1 July 2013.
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