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TP Reforms with Treaty Countries

Recent transfer pricing reforms in Australia ensure that the country can make adjustments to the taxable income of residents, and non-residents with permanent establishments, in accordance with its tax treaties with other countries. Taxand Australia provides an overview of the new regime.

Transfer pricing laws address arrangements under which profits are shifted out of Australia, most often through international transactions between resident and non-resident companies. Shifting profits out of Australia has the general effect of reducing amounts of income that would otherwise be brought to tax in Australia.

The recent reforms:

  • Empower the Commissioner to make decision in terms of the increase in taxable income or reduction in the tax or capital losses, in circumstances where the taxpayer derives a "transfer pricing benefit"
  • Require that the "arm's length" principle is interpreted consistently with OECD guidelines
  • Allow the Commissioner to make greater use of indirect profit based methodologies in reviewing the pricing of transactions
  • Will only apply to taxpayers and arrangements that would be subject to either the "associated enterprises" or "business profits" articles under a tax treaty at the time a transfer pricing benefit arose.
The main concern surrounding these reforms is their retrospective application. This will apply to arrangments between related parties in treaty countries for all income years from 1 July 2004, onwards.

Discover more: Retrospective transfer pricing regime reforms

Taxand's Take

The new regime means that treaty countries are faced with a detailed re-examination of their international dealings to ensure compliance with OECD transfer pricing guidelines, as far back as 2004. This may further apply to non-treaty countries once the second tranche of the transfer pricing reforms are released, which are expected in September 2012.

Your Taxand contact for further queries is:

Reynah Tang
T. +61 3 9672 3535

Taxand's Take Author