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  • Transfer pricing arrangements and JobKeeper payments

    This information provides guidance on the treatment of JobKeeper payments in transfer pricing arrangements. It does not alter or modify the tax treatment of the payment received under the JobKeeper Payment scheme or other provisions of the income tax law.

    Find out about:

    How we will assess the impact

    We will assess the impact of the JobKeeper payment on transfer pricing arrangements, by reviewing arrangements where the JobKeeper payment:

    • resulted in a change to the transfer price paid or received by the Australian entity
    • was shown to effectively shift the benefit of the government assistance to offshore related parties.

    We will seek to understand any interaction between the JobKeeper payment received and your transfer pricing arrangements. It is expected that Australian entities will retain the benefit of the JobKeeper payment they receive.

    Treatment of JobKeeper payments for transfer pricing purposes

    A significant number of businesses with varying transfer pricing arrangements are potentially affected by JobKeeper.

    The following is a basic example of how JobKeeper payments should be treated in transfer pricing arrangements. It is not possible to provide an example covering all arrangements.

    In this example, an Australian subsidiary of a multinational group provides information technology services to its offshore related party. It charges the full cost of providing the services plus a profit mark-up of 10%. The profit mark-up is based on a comparability analysis and is assumed to be arm’s length.

    The Australian subsidiary incurs $60 of salary cost and other operating costs of $40, totalling $100. The Australian subsidiary is eligible for and receives the JobKeeper payment amounting to $60, which subsidises the $60 of salary cost.

    The JobKeeper payment is presented in the Australian subsidiary’s profit and loss statement as a reduction of the related salary expenses.

    Correct transfer pricing treatment

    Example 1 shows the correct calculation, where the cost base of the service is not reduced by the JobKeeper payment for the purpose of calculating the transfer price.

    Example 1: Correct transfer pricing treatment

    The transfer price is calculated as follows:

    • Salary expense ($60) + other operating costs ($40) = total cost ($100).
    • Total cost ($100) + mark-up (10%) = transfer price ($110).

    The profit and loss statement is calculated as follows:

    • Revenue (transfer price) − salary expense − other operating costs = net income.
    • $110 − $0 ($60 subsidised by $60 JobKeeper payment) − $40 = $70.
    End of example

    JobKeeper payments should not result in a reduction of the price of the service provided to the offshore related party. No reduction should be made to the cost of the service. The cost base in the above example remains as $100, which continues to attract a mark-up of $10.

    Incorrect transfer pricing treatment

    Example 2 shows an incorrect calculation for transfer pricing purposes, where the cost base of the service is reduced by the JobKeeper payments, resulting in a reduction of the price of the service. The Australian subsidiary does not retain the benefits of the government assistance, instead subsidising the price of its service for the benefit of its offshore related party.

    Example 2: Incorrect transfer pricing treatment

    Transfer price:

    • Salary expense ($60 subsidised by the $60 JobKeeper payment = $0) + other operating costs ($40) = total cost ($40)
    • Total cost ($40) + mark-up (10%) = transfer price ($44).

    Profit and loss statement:

    • Revenue (transfer price) − salary expense − other operating costs = net income
    • $44 − $0 ($60 subsidised by $60 JobKeeper payment) − $40 = $4.
    End of example

    Independent parties acting in a commercially rational manner would not be expected to share the benefit of the government assistance. The Australian entity should retain the benefit of the government assistance it receives.

    Contact us

    If you're unsure about your arrangements, you should discuss your circumstances with us. To ask questions or request assistance, email International@ato.gov.au.

    Alternatively, if you have a dedicated key relationship manager, you can contact them directly.

      Last modified: 15 Jul 2020QC 63188