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  • When a transfer pricing position is a reportable tax position

    You must report a transfer pricing position in Category A on the RTP schedule where it stems from related party dealings not covered by section 284-255 (Taxation Administration Act 1953) compliant transfer pricing documentation. This is because there's insufficient information to determine if it's more likely to be correct than incorrect.

    You need to report revenue and expenditure based transfer pricing positions (not covered by compliant documentation) separately. But you can combine and report all related party revenue or related party expenditure as single Category A RTPs.

    Where a transfer pricing position is also a Category C position you don't need to disclose this position in Category A or B.

    If your related party dealings are covered by section 284-255 compliant transfer pricing documentation, your transfer pricing position is only a Category A or B RTP if either:

    • it falls within the high-risk zone of published ATO guidance that is not a Category C position
    • the actual amount you receive or pay falls outside the arm's length range between the 25th quartile and 75th quartile in your documentation and the difference results in a transfer pricing benefit.

    The benchmarks used in preparing your section 284-255 compliant documentation need to be appropriate to your circumstances. Your documentation must include assurance, from an appropriately experienced professional, that the position taken is reasonably arguable.

    Appropriately experienced professional

    The taxpayer has to make the judgement in the context of the skills of the person, and the nature of the TP problem, and the value of the transaction/tax at risk.

    The appropriate level of expertise will depend on the materiality and complexity of the position, and the appropriate person must have Australian transfer pricing experience and can be internal or external to the company.

    Level of assurance

    The position requires the appropriately experienced professional to sign off on the advice to give assurance, based on their opinion and experience etc, that the position put forward is reasonably arguable.

    Last modified: 23 Jul 2020QC 58955