• Section G: Taxpayer's Declaration

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    If you do not lodge the schedule with your tax return you must sign and date the schedule.

    Only applies to schedules lodged in paper form.

    Appendices

    Appendix 1: Specified countries and codes

    Specified country Code Specified country Code

    Andorra

    AND

    Liechtenstein

    LIE

    Anguilla

    AIA

    Marshall Islands

    MHL

    Antigua and Barbuda

    ATG

    Mauritius

    MUS

    Aruba

    ABW

    Monaco

    MCO

    Bahamas

    BHS

    Montserrat

    MSR

    Bahrain

    BHR

    Nauru

    NRU

    Belize

    BLZ

    Niue

    NIU

    Bermuda

    BMU

    Panama

    PAN

    British Virgin Islands

    VGB

    Saint Kitts and Nevis

    KNA

    Cayman Islands

    CYM

    Saint Lucia

    LCA

    Cook Islands

    COK

    Saint Martin (Dutch Part)

    SXM

    Curacao

    CUW

    Saint Vincent & the Grenadines

    VCT

    Cyprus

    CYP

    Samoa

    WSM

    Dominica

    DMA

    San Marino

    SMR

    Gibraltar

    GIB

    Seychelles

    SYC

    Grenada

    GRD

    Turks and Caicos Islands

    TCA

    Guernsey

    GGY

    US Virgin Islands

    VIR

    Isle of Man

    IMN

    Vanuatu

    VUT

    Jersey

    JEY

     

     

    Liberia

    LBR

     

     

    Appendix 2: Country names and codes

    Guernsey, Jersey and Isle of Man each have a separate country code.

    Country Code Country Code

    Afghanistan

    AFG

    Liberia

    LBR

    Aland Islands

    ALA

    Libya

    LBY

    Albania

    ALB

    Liechtenstein

    LIE

    Algeria

    DZA

    Lithuania

    LTU

    American Samoa

    ASM

    Luxembourg

    LUX

    Andorra

    AND

    Macau

    MAC

    Angola

    AGO

    Macedonia, The Former Yugoslav Republic of

    MKD

    Anguilla

    AIA

    Madagascar

    MDG

    Antarctica

    ATA

    Malawi

    MWI

    Antigua and Barbuda

    ATG

    Malaysia

    MYS

    Argentina

    ARG

    Maldives

    MDV

    Armenia

    ARM

    Mali

    MLI

    Aruba

    ABW

    Malta

    MLT

    Austria

    AUT

    Marshall Islands

    MHL

    Azerbaijan

    AZE

    Martinique

    MTQ

    Bahamas

    BHS

    Mauritania

    MRT

    Bahrain

    BHR

    Mauritius

    MUS

    Bangladesh

    BGD

    Mayotte

    MYT

    Barbados

    BRB

    Mexico

    MEX

    Belarus

    BLR

    Micronesia, Federated States of

    FSM

    Belgium

    BEL

    Moldova

    MDA

    Belize

    BLZ

    Monaco

    MCO

    Benin

    BEN

    Mongolia

    MNG

    Bermuda

    BMU

    Montenegro

    MNE

    Bhutan

    BTN

    Montserrat

    MSR

    Bolivia

    BOL

    Morocco

    MAR

    Bonaire, Saint Eustatius and Saba Islands

    BES

    Mozambique

    MOZ

    Bosnia and Herzegovina

    BIH

    Myanmar (was Burma)

    MMR

    Botswana

    BWA

    Namibia

    NAM

    Bouvet Island

    BVT

    Nauru

    NRU

    Brazil

    BRA

    Nepal

    NPL

    British Indian Ocean Territory

    IOT

    Netherlands

    NLD

    British Virgin Islands

    VGB

    New Caledonia

    NCL

    Brunei Darussalam

    BRN

    New Zealand

    NZL

    Bulgaria

    BGR

    Nicaragua

    NIC

    Burkina Faso

    BFA

    Niger

    NER

    Burundi

    BDI

    Nigeria

    NGA

    Cambodia

    KHM

    Niue

    NIU

    Cameroon

    CMR

    Norfolk Island

    NFK

    Canada

    CAN

    Northern Mariana Islands

    MNP

    Cape Verde

    CPV

    North Korea

    PRK

    Cayman Islands

    CYM

    Norway

    NOR

    Central African Republic

    CAF

    Oman

    OMN

    Chad

    TCD

    Pakistan

    PAK

    Chile

    CHL

    Palau

    PLW

    China

    CHN

    Palestinian Territory, Occupied

    PSE

    Christmas Island

    CXR

    Panama

    PAN

    Cocos (Keeling) Islands

    CCK

    Papua New Guinea

    PNG

    Colombia

    COL

    Paraguay

    PRY

    Comoros

    COM

    Peru

    PER

    Congo, Democratic Republic of (was Zaire)

    COD

    Philippines

    PHL

    Congo, People's Republic of

    COG

    Pitcairn Island

    PCN

    Cook Islands

    COK

    Poland

    POL

    Costa Rica

    CRI

    Portugal

    PRT

    Côte D'Ivoire (Ivory Coast)

    CIV

    Puerto Rico

    PRI

    Croatia (Hrvatska)

    HRV

    Qatar

    QAT

    Cuba

    CUB

    Reunion

    REU

    Curacao

    CUW

    Romania

    ROU

    Cyprus

    CYP

    Russian Federation

    RUS

    Czech Republic

    CZE

    Rwanda

    RWA

    Denmark

    DNK

    Saint Barthélemy

    BLM

    Djibouti

    DJI

    Saint Helena

    SHN

    Dominica

    DMA

    Saint Kitts and Nevis

    KNA

    Dominican Republic

    DOM

    Saint Lucia

    LCA

    East Timor (Timor Leste)

    TLS

    Saint Martin (French Part)

    MAF

    Ecuador

    ECU

    Saint Martin (Dutch Part)

    SXM

    Egypt

    EGY

    Saint Pierre and Miquelon

    SPM

    El Salvador

    SLV

    Saint Vincent and The Grenadines

    VCT

    Equatorial Guinea

    GNQ

    Samoa

    WSM

    Eritrea

    ERI

    San Marino

    SMR

    Estonia

    EST

    Sao Tome and Principe

    STP

    Ethiopia

    ETH

    Saudi Arabia

    SAU

    Falkland Islands (Malvinas)

    FLK

    Senegal

    SEN

    Faroe Islands

    FRO

    Serbia

    SRB

    Fiji

    FJI

    Seychelles

    SYC

    Finland

    FIN

    Sierra Leone

    SLE

    France

    FRA

    Singapore

    SGP

    French Guiana

    GUF

    Slovakia (Slovak Republic)

    SVK

    French Polynesia

    PYF

    Slovenia

    SVN

    French Southern Territories

    ATF

    Solomon Islands

    SLB

    Gabon

    GAB

    Somalia

    SOM

    Gambia

    GMB

    South Africa

    ZAF

    Georgia

    GEO

    South Georgia and the South Sandwich Islands

    SGS

    Germany

    DEU

    South Korea

    KOR

    Ghana

    GHA

    South Sudan

    SSD

    Gibraltar

    GIB

    Spain

    ESP

    Greece

    GRC

    Sri Lanka

    LKA

    Greenland

    GRL

    Sudan

    SDN

    Grenada

    GRD

    Suriname

    SUR

    Guadeloupe

    GLP

    Svalbard and Jan Mayen Islands

    SJM

    Guam

    GUM

    Swaziland

    SWZ

    Guatemala

    GTM

    Sweden

    SWE

    Guernsey

    GGY

    Switzerland

    CHE

    Guinea

    GIN

    Syria

    SYR

    Guinea-Bissau

    GNB

    Taiwan

    TWN

    Guyana

    GUY

    Tajikistan

    TJK

    Haiti

    HTI

    Tanzania

    TZA

    Heard and McDonald Islands

    HMD

    Thailand

    THA

    Holy See (Vatican City State)

    VAT

    Timor-Leste (East Timor)

    TLS

    Honduras

    HND

    Togo

    TGO

    Hong Kong

    HKG

    Tokelau

    TKL

    Hrvatska (Croatia)

    HRV

    Tonga

    TON

    Hungary

    HUN

    Trinidad and Tobago

    TTO

    Iceland

    ISL

    Tunisia

    TUN

    India

    IND

    Turkey

    TUR

    Indonesia

    IDN

    Turkmenistan

    TKM

    Iran

    IRN

    Turks and Caicos Islands

    TCA

    Iraq

    IRQ

    Tuvalu

    TUV

    Ireland

    IRL

    Uganda

    UGA

    Isle of Man, The

    IMN

    Ukraine

    UKR

    Israel

    ISR

    United Arab Emirates

    ARE

    Italy

    ITA

    United Kingdom

    GBR

    Ivory Coast (Côte D'Ivoire)

    CIV

    United States

    USA

    Jamaica

    JAM

    United States Minor Outlying Islands

    UMI

    Japan

    JPN

    United States Virgin Islands

    VIR

    Jersey

    JEY

    Uruguay

    URY

    Jordan

    JOR

    Uzbekistan

    UZB

    Kazakhstan

    KAZ

    Vanuatu

    VUT

    Kenya

    KEN

    Vatican City State (Holy See)

    VAT

    Kiribati

    KIR

    Venezuela

    VEN

    Korea, Democratic People's Republic of (North Korea)

    PRK

    Vietnam

    VNM

    Korea, Republic of (South Korea)

    KOR

    Wallis and Futuna Islands

    WLF

    Kuwait

    KWT

    Western Sahara

    ESH

    Kyrgyzstan

    KGZ

    Yemen

    YEM

    Laos

    LAO

    Zambia

    ZMB

    Latvia

    LVA

    Zimbabwe

    ZWE

    Lebanon

    LBN

     

     

    Lesotho

    LSO

     

     

    Appendix 3: Listed country names and codes

    Listed country Code

    Canada

    CAN

    France

    FRA

    Germany

    DEU

    Japan

    JPN

    New Zealand

    NZL

    United Kingdom of Great Britain and Northern Ireland

    GBR

    United States of America

    USA

    Appendix 4: Activity codes

    Activity
    code
    Activity code description

    1

    Administrative services

    Activities that relate to an entity's operations but excluding activities relating to financing and production. These activities include:

    • management services
    • back office services
    • administrative services associated with recharge amounts
    • accounting services
    • IT support services
    • human Resources
    • legal
    • accounting.

     

    2

    Advisory services

    Activities involving the provision and receipt of professional advice where a fee is paid for the advice, including:

    • consultancy activities
    • investment advice
    • legal advice.

     

    3

    Asset management

    Activities associated with the management of assets/ funds/ investments. This will be undertaken on a discretionary basis in accordance with an investment strategy, with the entity responsible for:

    • acquiring, monitoring, managing and disposing of traditional and alternate financial products held by the taxpayer or a related party
    • assessing, monitoring and managing the market risks associated with holding these financial products.
     

    4

    Borrowing and lending

    Activities involving the generation of internal and external funding.

    5

    Brokerage

    Activities involving the mediation between a buyer and a seller, occurring in a range of products, including:

    • mortgages, where brokers act as intermediaries to sell mortgage loans on behalf of individuals or businesses
    • commodities, where brokers execute orders to buy or sell commodity contracts on behalf of clients
    • investment, where brokers act as intermediaries between investment buyers and sellers.

     

    6

    Cash & trade services

    Activities involving the facilitation of fund transfers and the exchange of goods and services, including:

    • cash management systems (payment processing systems)
    • foreign exchange clearing services
    • trade settlements
    • letters of credit (trade, insurance and export).

     

    7

    Construction

    All construction activities including residential and commercial construction and the construction of utilities and infrastructure.

    8

    Custody and transaction clearing services

    Custody is all activities that are associated with the safekeeping of securities for customers, also includes the collection of dividends, interest and proceeds from securities sales.

    Transaction clearing are all activities associated with the management of post-trading, pre-settlement credit exposures, to ensure that trades are settled in accordance with market rules, including:

    • reporting and monitoring
    • risk margining
    • netting of trades to single positions.

     

    9

    Derivatives

    Activities undertaken in respect of derivatives (a financial instrument derived from some other asset, index, event, value or condition). The overall derivatives market has five major classes of underlying asset:

    • interest rate derivatives (for example, interest rate swaps/options)
    • foreign exchange derivative (for example, currency swaps/options)
    • credit derivatives (for example, credit default swaps/options)
    • equity derivatives (for example, equity swaps/ warrants)
    • commodity derivatives (for example, commodity swaps/gold options).
     

    10

    Distribution and sale of goods

    Goods purchased by a distributor from an international related party.

    11

    Financing activities

    Activities involving dealings in financial instruments that would qualify as financial assets or financial liabilities under relevant Australian accounting standards or comparable foreign accounting standards but excludes financial instruments that would meet the definition of a derivative. At the time of this publication, the two key Australian accounting standards relevant to this question include:

    • AASB 132 Financial Instruments: Presentation
    • AASB 139 Financial Instruments: Recognition and Measurement.

    The relevant amounts may be reported in the financial statements as revenue/gains or expenses/losses, depending on the accounting treatment of your relevant financial assets and financial liabilities (this includes amounts relating to hedging items that are classified in the financial statements as financial assets or financial liabilities). Therefore, for the purposes of this activity code, the terms ‘expenditure’ and ‘losses’ are interchangeable and the terms ‘revenue’ and ‘gains’ are interchangeable.

    12

    Guarantees

    Activities associated with contracts under which a party agrees to perform an obligation or discharge a liability of another entity should that entity fail to do so.

    13

    Insurance and reinsurance

    Insurance and reinsurance activities include general insurance, life insurance and health insurance.

    14

    Leasing

    Activities that relate to agreement between two parties under which one is granted the right to use the property of the other for a specified period of time in return for a series of payments by the user to the owner.

    15

    Licensing or transfer of intellectual property

    Activities involving an intellectual property rights owner (licensor) and another entity which is given authorisation to use these rights (licensee) in exchange for an agreed payment (fee or royalty). This includes activities involving:

    • technology license agreements
    • trademark licensing agreements
    • copyright license agreements
    • trademark license agreements
    • franchise agreements
    • sales/purchase of IP.

     

    16

    Logistics

    Activities associated with the managing of a commercial organisation’s supply chain that supports the sourcing, timing and movement of goods and/or services, including:

    • shipping
    • transport
    • storage
    • procurement and sourcing
    • freight
    • scheduling.

     

    17

    Manufacturing and sale of goods

    Activities involved in the sale of goods created by a manufacturing process (excluding agriculture).

    18

    Media, telecommunications and information services

    With regard to media and information services, activities associated with the creation, collation and dissemination/distribution of content via:

    • television
    • radio
    • newspapers/journals/magazines (both hardcopy and equivalent electronic versions)
    • books (both hardcopy and equivalent electronic versions)
    • CD/DVD
    • internet
    • other information and communication channels.

    With relation to Telecommunications, activities associated with the operation, management, maintenance and sale of access to telecommunications infrastructure and networks including:

    • telephony
    • fax/data
    • digital cable/satellite television
    • internet.

     

    19

    Primary production/extraction and sale of goods

    Activities involved in the sale of physical products that have resulted from:

    • the growing of crops, raising of animals, growing and harvesting of timber
    • the extraction of naturally occurring mineral solids, such as coal and ores; liquid minerals, such as crude petroleum; and gases, such as natural gas.

     

    20

    Purchase and distribution of goods

    Goods sold by a distributor to an international related party.

    21

    Purchase and manufacture of goods

    Activities associated with the purchase of goods to be used in a manufacturing process (excluding agriculture).

    22

    Receipt/payment of dividends and distributions from trusts and partnerships

    23

    Retail trade

    Activities associated with the retail trade of all goods classifications to end customers through a shopfront or e-commerce website.

    24

    Sales and marketing services

    Sales:

    • commission/amounts received or paid in respect of the provision of services to facilitate the sale of goods or services
    • amounts received or paid in respect of transaction, investment and information services carried out on behalf of customers relating to the customer’s securities, financial assets, financial liabilities, portfolios and/or other assets.

    Marketing:

    activities that involve acquiring new customers or businesses and maintaining a relationship with them, including

    • advertising
    • brand promotion
    • sales strategies
    • customer support services.
     

    25

    Securitisation services

    Activities involving the packaging of an income by the party entitled to it and the subsequent sale of such income stream to investors.

    26

    Software and information technology services

    Activities involved in the support and maintenance of software and technology used by the taxpayer. Activities relating to the ownership of the software and technology are excluded, such as leasing and rental fees.

    27

    Superannuation

    Activities associated with providing, funding or offering investment strategies for financial security upon retirement.

    28

    Technical services

    Activities involving:

    • engineering
    • project management
    • R&D
    • exploration.
     

    29

    Toll manufacturing services

    Activities involved with the provision of manufacturing services for a fee or price per unit payment, where the manufacturing entity does not take legal title to the inventory or finished goods.

    30

    Treasury related services

    Activities involved in the managing of the taxpayer's financial operations, including:

    • transaction, investment and information services relating to securities, financial assets, financial liabilities, portfolios and/or other assets held by yourself or an international related party
    • risk management systems development and review
    • the management of currencies and cash flows
    • complex strategies, policies and procedures relating to the taxpayer finance.

     

    31

    Underwriting services

    Activities involves measuring risk exposure and determining the premium that needs to be charged to insure that risk, including:

    • securities underwriting (underwriter assumes risk in bringing the issue to market by guaranteeing the issuer will receive a certain price when the offering is sold to investors)
    • bank underwriting (underwriting is the detailed credit analysis preceding the granting of a loan, based on credit information furnished by the borrower).

    Note: Insurance underwriting should be reported under activity code 9 – insurance and reinsurance.

    32

    Utilities and infrastructure

    Activities associated with the operation and management of utilities (for example, electricity, gas, water, sewerage) and infrastructure (for example, roads, rail, airports, sea ports).

    99

    Other

    All other activities not listed above.

    Appendix 5: Main pricing methodologies

    The arm's length pricing methodologies should be identified using the codes listed below.

    Code Arm's length pricing method

    1

    Apportionment of costs

    This pricing method apportions the costs associated with a controlled transaction among the associated enterprises. An answer must be found to all transfer pricing problems. However, cases may arise where neither comparable dealings nor data are available to apply the traditional, or profit-based, methods. In these instances, application of an indirect method such as apportionment of costs on the basis of a formula may be applicable.

    2

    Apportionment of income

    This pricing method apportions the income associated with a controlled transaction among the associated enterprises.

    As with code 1, this method may be appropriate where there are neither comparable dealings nor data to apply the traditional, or profit-based, methods to the pricing problem.

    3

    Comparable uncontrolled price method

    This traditional transfer pricing method compares the price for property or services transferred in a controlled transaction - that is, with a related international party - to the price that is charged for comparable property or services under the same or similar circumstances in an uncontrolled transaction.

    Where it is possible to locate comparable uncontrolled transactions, the comparable uncontrolled price method is the most direct and reliable way to apply the arm's length principle. If there is any difference between the prices or the terms or nature of the controlled transaction and the uncontrolled transaction, this may indicate that the dealings of the associated enterprises are not arm's length.

    Note that intangible and intellectual property transactions present particular problems with regard to comparability, especially where such property is unique or specialised.

    If you use this method but the comparable uncontrolled price is adjusted to allow for particular circumstances of the controlled dealing, you should still record the adjusted price under this code.

    4

    Cost-contribution arrangement

    A cost-contribution arrangement is one where members of a multinational group act in concert for the benefit of each of the participants to:

    • produce or provide goods, intangible property or services
    • acquire these jointly from a third party
    • agree to share the actual costs and risks undertaken.

    Each participant bears a fair share of the costs and is entitled to receive a fair share of rewards. The concept is akin to a joint venture or partnership.

    To be consistent with the arm's length principle, the contributors must be satisfied that they can obtain an acceptable rate of return within a timeframe that takes into account their financial and business circumstances.

    For more information refer to Taxation Ruling TR 2004/1 - Income tax: international transfer pricing - cost contribution arrangements.

    5

    Cost-plus method

    This is a traditional transfer pricing methodology. The cost-plus method begins with the costs incurred by the supplier of property or services in a controlled transaction for property transferred or services provided to a related purchaser. An appropriate arm's length cost-plus mark-up is then added to this cost to make an appropriate profit in light of the functions performed and the market conditions. What is arrived at after adding the arm's length cost-plus mark-up to the above costs may be regarded as an arm's length price of the original controlled transaction.

    This method is probably most useful if:

    • semi-finished goods that are subject to additional manufacturing or assembly are sold between related parties
    • related parties have concluded joint facility agreements or long-term buy-and-supply arrangements
    • the controlled transaction is the provision of services.

    This method is not suited for high value intangibles.

    Further analysis can be undertaken by reviewing the cost plus mark-up of the supplier in the controlled transaction. This is done by referencing the cost plus mark-up that the same supplier earns in comparable uncontrolled transactions. The cost plus mark-up that would have been earned in comparable transactions by an independent enterprise may serve as guidance.

    If a fixed percentage mark-up is applied to the relevant cost base without any benchmarking of that percentage against comparable independent dealings, it is not regarded as cost-plus method.

    6

    Fixed mark-up applied to cost

    This method determines the transfer price for a controlled transaction by applying a fixed percentage mark-up to a relevant cost base where the mark-up is not benchmarked against comparable independent dealings. The absence of benchmarking distinguishes this method from the cost-plus method discussed at code 5.

    The 'fixed mark-up applied to cost' code should be used as described by TR 1999/1External LinkIncome tax: international transfer pricing for intra-group services has been utilised to set the pricing of intra group services.

    7

    Fixed percentage of resale price

    This pricing method determines the transfer price for a controlled transaction as a fixed percentage of the resale price, where the fixed percentage chosen is not benchmarked against the gross margins earned in comparable independent dealings.

    The absence of benchmarking distinguishes this method from the resale price method, code 10.

    The 'fixed percentage of resale price' methodology code should be used as described by TR 1999/1External LinkIncome tax: international transfer pricing for intra-group services has been utilised to set the pricing of intra group services.

    8

    Marginal costing

    Marginal costing applies only the variable production costs to the costs of a product. This method is often used by companies and multinational enterprise groups for internal cost accounting and management control purposes. Its use in setting transfer prices on international dealings between associated enterprises for tax purposes is acceptable only if pricing on the basis of marginal costs represents an arm's length outcome for the transfer of goods or services into the particular market.

    9

    Profit split method

    This is a transactional profit methodology. The profit split method determines the appropriate pricing for transactions by:

    • identifying the combined profit or loss from the dealings between the related parties
    • splitting that combined profit or loss between the related parties.

    The split of profit or loss between the parties must be made on an economically valid basis that approximates the division of profits in an agreement made at arm's length.

    10

    Resale price method

    This traditional transfer pricing method may be appropriate where an enterprise sells a product to a related party who then resells that product to an independent third party.

    The resale price is reduced by the arm's length resale price margin and may then be regarded - after adjustments for other costs associated with the original purchase of the product - as an arm's length price of the original transfer of property between the related parties.

    Further analysis can be undertaken by reviewing the resale price margin of the reseller in the controlled transaction. This is done by referencing the resale price margin that the same reseller earns on items purchased and sold in comparable uncontrolled transactions. The resale price margin earned by an independent enterprise in comparable uncontrolled transactions may also provide guidance.

    Margins are usually measured at gross profit level, however a comparison undertaken at an intermediate level may be more accurate. A comparison at the net profit level falls under a different methodology - the transactional net margin method.

    The resale price margin will vary depending on the value added by the reseller. Variables such as functions performed, economic circumstances, assets employed, and risks undertaken should reflect higher margins.

    11

    Transactional net margin method

    This is a transactional profit methodology. The transactional net margin pricing method is based on comparisons made at the net profit level between the taxpayer and independent parties in relation to a comparable transaction or dealing. It examines the net profit margin relative to an appropriate base (eg costs, sales or assets) that a taxpayer realises from a controlled transaction.

    Comparisons at the net profit level can be made on a single transaction or in relation to some aggregation of dealings between associated enterprises.

    12

    Transactional net margin method (whole-of-entity)

    The transactional net margin method is discussed at code 11. If after exercising commercial judgement you have decided to aggregate and test the arm’s length nature of multiple international related party dealings through the application of the transactional net margin method on a whole-of-entity basis, then use code 12 as the main pricing methodology.

    See Appendix 9 for when to use ‘Transactional net margin method (whole-of-entity)’ methodology.

    13

    Other arm's length methods

    Use code 13 if your arm's length method is not represented by codes 1 to 12.

    14

    No transfer pricing method used

    Use code 14 if no principal transfer pricing method has been used.

    Appendix 6: Derivative codes

    The type of derivative should be identified using the codes listed below.

    Type of derivative Code

    Credit default swaps

    1

    Currency swaps

    2

    Forwards

    3

    Interest rate swaps

    4

    Options

    5

    Swaps – other

    6

    Warrant

    7

    Other

    8

    Cross currency interest rate swap transactions are to be included under the code for currency swaps.

    Appendix 7: Nature of item codes

    Item code description Item code

    Company shares

    1

    Contract manufacturing

    2

    Contractual interests

    3

    Deposits/investment assets

    4

    Derivative portfolio

    5

    Insurance policies

    6

    Insurance recapitalisation

    7

    Intellectual property/intangibles

    8

    Interests in trust, partnership or other entity type

    9

    Loan assets

    10

    Loan liabilities

    11

    Marketing hubs

    12

    Real property

    13

    Shared services

    14

    Shipping

    15

    Trading activities

    16

    Other assets

    17

    Other functions

    18

    Other liabilities

    19

    Other risks

    20

    Attention

    Where you believe that more than one item code may apply, use the most appropriate code.

    The terms used in these codes should be interpreted in accordance with their ordinary meaning as used in the context of the industry to which the term relates.

    End of attention

    Appendix 8: Transferor trust exemption codes

    Subsection/section Code

    102AAT(1)(a)(i)(A) to (D)

    The transfer was:

    • made to a non-resident discretionary trust
    • an arm's length transaction undertaken in the ordinary course of business.

     

    1

    102AAT(1)(a)(i)(A) to (C) & (E)

    The transfer was:

    • made to a non-resident discretionary trust
    • an arm's length transaction not undertaken in the ordinary course of business
    • neither the transferor nor its associates were in a position to control the trust (from the time of the transfer until the end of the transferor's current year of income).

     

    2

    102AAT(1)(a)(i)(A) to (C) & (F)

    The transfer was:

    • made to a non-resident discretionary trust
    • made either on or before 12 April 1989
    • neither the transferor nor its associates were in a position to control the trust (from 12 April 1989 until the transferor's current year of income).

    This exemption will not apply to transfers made in the last three income years.

    3

    102AAT(1)(a)(ii)(A) to (C)

    The transfer was:

    • made to a non-resident non-discretionary trust
    • made either on or after 12 April 1989
    • for a consideration equal to or greater than the arm's length amount.

     

    4

    102AAT(1)(a)(ii)(A), (B) & (D)

    The transfer was:

    • made to a public unit trust (that is a non-resident trust estate)
    • made either on or after 12 April 1989
    • for a consideration equal to or greater than the arm's length amount
    • the sole purpose of the transaction was the arm's length acquisition of units in a public unit trust.

     

    5

    102AAZE

    De minimis exemption

    The transfer was made to a non-resident trust that is a resident of a listed country and the total of the attributable incomes of all non-resident trust estates is equal to or less than the lesser of either:

    • $20,000
    • 10% of the total of the net incomes of the trust estates.

     

    6

    Appendix 9: Percentage of dealings with documentation

    'Percentage of dealings with documentation' refers to the aggregate dollar amount of transactions reported at specific questions in the schedule for which you have relevant documentation (as per TR 98/11External Link) expressed as a percentage of total dollar value of transactions reported at each specific question.

    Transfer pricing documentation

    We advocate through various guides, a four-step process that links the arm's length principle, questions of comparability and the transfer pricing methodologies.

    There is a business risk of a transfer pricing review if you do not have proper processes to determine arm's length prices and cannot demonstrate to us the methods used to determine the prices. The arm's length principle involves comparing what a business has done and what a truly independent party would have done in the same or similar circumstances. Documentation is only one factor in determining whether to commence a review.

    The fourth column, at F items 6 to 18 requires estimates of the percentages of the total dollar value of the related-party international dealings for which you have written documentation.

    We will also consider the quantum of the related-party transactions and the commerciality (for instance, the level of profitability). We might choose not to audit a business which has a low dollar value of related-party transactions that appear to be at arm's length prices, even though the business recorded code '1' for percentage of dealings with documentation, because the business did not maintain contemporaneous documentation.

    Transfer pricing - the four-step process

     A four-step process that links the arm's length principle, questions of comparability and the transfer pricing methodologies

    Transfer pricing - the four-step process

    The selection of the most appropriate arm's length pricing methods for your related-party international dealings is described in step 2 of TR 98/11External Link.

    We recommend you maintain documented records that support your international dealings in determining that the arm's length principle has been applied.

    The type of documentation required in international dealings is discussed below and described in step 1 of TR 98/11External Link.

    Documentation should take the form of a file maintained with details such as:

    • a description of the business and the business model
    • how transactions with international related parties fit in with your business model
    • how your international dealings are affected by industry, economic conditions or other influences
    • whether you are undertaking any business strategy that influences your decision making, such as a market penetration strategy – this detail is commonly found in a functional analysis report.

    The file should also contain specific documentation to support the transfer pricing methodology selected and indicate that it reflects an arm's length approach. Specific documentation could include price lists, budgets, studies, plans and projections, correspondence, working papers and agreements with related parties that reflect how you set and recorded prices.

    Added to the documentation file should be records on what action has been taken to confirm and test that the price you have set and recorded reflects an arm's length outcome – for example, doing a benchmark study.

    Contemporaneous documentation

    Documentation is contemporaneous if:

    • it is existing or brought into existence either:
    • at the time you are developing or implementing any arrangement that might raise transfer pricing issues
    • when you are reviewing these arrangements prior to or at the time of the preparation of tax returns
    • the documentation records information relevant to transfer pricing decisions.

    The documentation may be in the form of books, records, studies, budgets, plans and projections, analyses, conclusions and other material that record the information. It may be in electronic or written form.

    The initial analysis of your international dealings against the arm's length principle will have been carried out and documented at the time of engaging in the dealings. To review those international dealings before you prepare your tax returns is prudent business practice.

    Where you have not used arm's length consideration in the ordinary course of your related-party international dealings, review prices before preparing the tax return, and make any adjustments for taxation purposes. Keep all your documentation in relation to this.

    Adequacy of documentation

    We do not expect taxpayers to prepare or obtain documents beyond the minimum needed to make a reasonable assessment of whether they have complied with the arm's length principle in setting prices or consideration.

    The documentation that is created in the ordinary course of the taxpayer's business and used to establish the prices for its international related-party dealings (for example, invoices and orders) will not generally be regarded as contemporaneous documentation in relation to the arm's length nature of the dealings. This is because the documents do not produce any evidence or provide any basis for comparison for determining whether prices are established at arm's length.

    It is not possible to provide a general checklist of documentation that would be adequate or desirable. We realise that it is necessary to strike an acceptable balance between the need to keep compliance costs to a minimum and our legitimate concern in ensuring the proper amount of Australian tax is paid.

    The amount and type of documentation that should be created or obtained over and above that created in the ordinary course of business will depend on the facts and circumstances of each case.

    The issue is a practical one having regard to what a prudent business person would do in the same circumstances, and taxpayers need to exercise commercial judgment in assessing their own compliance with the arm's length principle.

    To determine the code for the percentage of your dealings with international related parties

    At F items 5 to 13, and 17 specify the code for the percentage of your dealings with international related parties for which you have supported the arm's length outcome with written documentation. Write the relevant code from the table below.

    If after exercising commercial judgement you have decided to aggregate and test the arm’s length nature of multiple international related party dealings through the application of the transactional net margin method on a whole-of-entity basis, then do both of the following:

    • write code 12 at E to show ‘transactional net margin method on a whole-of-entity’ as the main pricing methodology.
    • write the applicable code from the list below at label F to indicate the percentage of dealings with documentation for questions 5 to 13, and 17.

    If, in exercising your commercial judgement you decide not to apply a whole of entity transactional net margin method analysis, you should test and document your international related party dealings and select the most appropriate code from appendix 5 to include at E, and use one of the following numeric codes to state the percentage of the total of the dollar value for which you have documentation.

    Percentage  Code

    0%

    1

    1% to less than 25%

    2

    25% to less than 50%

    3

    50% to less than 75%

    4

    75% to less than 100%

    5

    100%

    6

    You may calculate the percentage on the basis of a reasonable estimate.

    A statistical sample may be an appropriate method of calculating the relevant percentage, provided the sample selection and mathematical consideration are consistent with generally accepted statistical methods.

    Keep your working papers if you have used a sampling process to make this estimate.

    Appendix 10: Capital asset pricing methodologies

    The capital asset pricing methodologies should be identified using the codes listed below.

    Pricing method Code

    Cost price

    1

    Directors valuation

    2

    Discounted cash flow

    3

    Independent valuation

    4

    Nil consideration

    5

    Quoted market price

    6

    Written-down value

    7

    Other methods

    8

     

    Cost price is the price the seller originally paid for the asset, including ancillary costs such as freight or handling.

    Written-down value is a pricing method based on either the taxation 'adjustable value' or accounting residual value after depreciation has been allowed.

    Discounted cash flow is a pricing method where the price of an asset is based on the discounted cash flow at the time of acquisition or disposal.

    Director's valuation is a pricing method that is based on the directors' opinion of an asset's value, and not on any of the other methods listed in codes 1 to 8.

    Independent valuation is a pricing method by which a suitably qualified person, acting at arm's length to both the buyer and seller, assesses the value of an asset.

    Quoted market price is a price quoted on a public listed market, such as a public stock exchange, or commodities market.

    Other methods means any other pricing method that is not mentioned in item 6.

    The above pricing methods may not provide an arm's length price under all circumstances. The above examples are not an exhaustive list.

    Appendix 11: Capital value of a restructure

    Use one of the following numeric codes to state the total of the dollar value of the restructure.

    Range Code

    $0 to less than $10 million

    1

    $10 million to less than $50 million

    2

    $50 million to less than $100 million

    3

    $100 million to less than $500 million

    4

    $500 million or greater

    5

    The dollar amounts or values asked for in this question are all based on your existing accounting records. For these transactions we ask you to make a reasonable determination of the value and we do not expect you to obtain a formal valuation for this purpose. Keep your working papers if you have made a reasonable determination.

    Last modified: 12 Feb 2014QC 35686