Transfer pricing rules are designed to make sure Australia receives an appropriate share of tax from multinational firms. They ensure tax is based on profits reflecting the economic activity attributable to Australia in accordance with an arm’s length principle.
Australia’s transfer pricing legislation specifies that it is to be interpreted ‘as best to achieve consistency’ with the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations as last updated in 2010.
In October 2015, the OECD released the report, ‘Aligning Transfer Pricing Outcomes with Value Creation’, to address issues with appropriately allocating returns for risk, and capital functionality. Adopting the new guidance should ensure that Australia continues to have best practice transfer pricing rules to help prevent multinationals from using excessing related party payments to shift profits overseas.
The attached consultation paper seeks stakeholder views on adopting the new OECD guidance in the context of the Australian tax system, particularly in addressing issues related to the timing of implementation of the recommendations, guidance that may be required from the ATO on the uptake of the recommendations, or any unintended consequences that might need to be addressed.