New Transfer Pricing Legislation Introduced into Parliament
The Government’s reform of Australia’s transfer pricing rules is one step closer, with the introduction into Parliament of Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013 ("the bill").
Treasury has listened to some of the key concerns arising from the November 2012 Exposure Draft legislation (“ED”) and amended the way the new transfer pricing rules are proposed to operate. Key changes from the ED relate to:
- The Commissioner’s power to disregard and reconstruct actual transactions entered into - the bill, together with additional references in the Explanatory Memorandum (“EM”), clarifies that the reconstruction rules are intended to be aligned with statements in the OECD Transfer Pricing Guidelines, so that the power to reconstruct should only be exercised in the “exceptional circumstances” described in the OECD Guidelines
- Maintenance of transfer pricing documentation and the link to penalties - as per the ED, failing to prepare transfer pricing documentation will prevent a taxpayer from having a reasonably arguable position (“RAP”) for penalty purposes. However, the bill and EM indicate that taxpayers are only expected to have documentation for conditions that are both material and relevant to the application of the transfer pricing rules. A failure to keep transfer pricing records in relation to a matter will only affect the existence of a RAP if the matter is disputed by the Commissioner and results in a tax shortfall
- Statutory limits within which transfer pricing adjustments can be made - the proposed limit is now seven years from the date of the relevant assessment, instead of eight per the ED. There is no time limit under the current transfer pricing rules.
Deloitte will release a technical analysis of the new bill and EM shortly.