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  • Transfer pricing – related party dealings

    We focus on income or profits generated in Australia that are not being subjected to domestic tax due to non-arm's length conditions of international related party dealings.

    Non-commercial financing arrangements

    Situations that attract our attention include entities entering into financing arrangements with international parties on non-commercial terms that generate excessive interest deductions or non-recognition of income in Australia.

    Related-party financing arrangements

    We are seeing instances where the terms and conditions of related party financing arrangements in the property and construction industry give rise to a transfer pricing benefit. We will review these arrangements having regard to the options realistically available to the entities at the time.

    Related party service arrangements

    We are seeing instances of related-party service fees being paid offshore that do not meet the benefits tests required for deductibility in accordance with TR 1999/1 concerning transfer pricing for intra-group services.

    Mischaracterisation of management services

    We are concerned with arrangements that mischaracterise transactions as the provision of management services where, in substance, all functions in relation to the offshore entity are either performed by staff in Australia or outsourced to third party providers that are directed by the Australian employees. These arrangements may cause a transfer pricing benefit to arise and may trigger other anti-avoidance provisions.

    Customer and supplier contracts or relationships moved offshore

    We are concerned with arrangements where pre-existing customer and supplier contracts or relationships are moved from an Australian entity to an offshore entity creating a transfer pricing benefit. We will seek to understand the commercial rationale for the change and seek evidence to support the arm's length nature of the transaction.

    Shifting Australian assets or operations offshore

    We are concerned about business restructures that shift Australian assets or operations offshore without arm's length compensation or appropriate recognition for their inherent underlying commercial value.

    Offshore hubs that derive high profits

    We are concerned about offshore hubs that derive high profits from marketing or procuring goods or services for Australian operations.

    See also

    Last modified: 09 May 2022QC 69453