Transfer pricing minutes, April 2008

7. Business restructures

Marc Simpson said that he has received seven comments to date on the discussion paper that was released in October 2007. In summary, the comments focussed on the following issues.

Generally positive feedback that the second paper is moving in right direction compared to first paper.
Don't like focus on 'economic substance'

there are concerns over commerciality and the 'commercial purpose' threshold requirement (that is before we get to pricing)
does the economic substance concept under transfer pricing guidelines involve more than ensuring conduct of the parties accords with contractual form that is does it also have an arm's length element?

There is a need for a very clear statement defining the limited circumstances in which the Tax Office will seek to do anything other than determine arm's length pricing for the contractual arrangements actually entered into.
There needs to be a discussion on how Division 13 authorises the Tax Office's position or approach

the suggestion was made that Division 13 only authorises Tax Office to price transactions
what is the interaction between Division 13 and Article 9?

is Article 9 a separate power to make TP adjustments?
what is the relevance of the OECD transfer pricing guidelines?

What is the relevance and purpose of the Tax Office taking account of 'options realistically available' to a taxpayer?.

There are concerns about auditors second-guessing business decisions with use of hindsight.

There are concerns about compliance burdens, that is documentation requirements.
The examples need more work but can have real value.

Marc said that he is still receiving submissions and that he appreciates the time and energy people have taken in providing their submissions. He is in the process of developing a revised document which he hopes to finalise by the end of 2008.

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