Show download pdf controls
  • Transfer Pricing Rules and Customs Valuations Working Group Minutes - 23 February 2015

    Meeting details


    747 Collins St Melbourne


    Sydney, Brisbane, Canberra


    23 February 2015








    Daryl Cornish


    Daryl Cornish

    Contact and Secretariat:

    Gulalai Fazal

    Contact phone:

    (03) 9285 1062


    ATO Members

    Daryl Cornish

    Advice and Guidance Practice - Public Groups and International (Chair)

    Jonathon Purcell


    Hilal Ali


    Gulalai Fazal

    Secretariat, PG&I

    Customs Members

    Thomas Lees

    Director, Trade Policy and Negotiations

    David Bancroft

    A/g Director, Border Revenue Policy

    George Binos

    Director, Compliance Enforcement (By phone)

    Treasury Members

    Ivar Kvistad

    Policy Analyst, Corporate & International Tax Division

    External representatives

    Susan Danks

    CBFCA (By phone)

    Stephen Morris

    CBFCA (By phone)

    Russell Wilkinson

    Crowe Horwath

    Andrew Hudson

    Gadens (By phone)

    Vanda Davis


    Kylie Norman (for Marc Bunch)

    EY (By phone)

    Bill Cole


    Leonie Ferretter

    KPMG (By phone)

    Russell Wiese

    Hunt & Hunt


    Michael Jenkins


    Adam Friederich


    David Ware


    John Skevington


    Agenda items


    Technical working group agendas, minutes and related papers are not binding on the Australian Taxation Office (ATO) or any of the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

    1. Purpose of the meeting

    This meeting follows the initial Transfer Pricing Rules and Customs Valuations Working Group meeting, which was held on 27 June 2014 and the second meeting on 21 November 2014.

    As noted in the Minutes of the two meetings held to date, there are concerns about the interaction between the comparatively new transfer pricing rules (introduced in 2012 and 2013) and the existing customs valuation rules. These concerns were outlined to the previous government during the consultations that took place for the introduction of the new transfer pricing regime, represented by Division 815. Notably, the Senate Economics Legislation Committee (SELC) report, released on 14 May 2013, recommended that the government consider further interagency consultation between the ATO, Customs and Treasury, and interested parties, to identify areas where there are mismatches in administrative approaches and to propose and discuss potential solutions to overcome these issues.

    The concerns raised by industry were principally about (i) the calculation of component amounts; and (ii) the apparent mismatch between the timeframe in which a transfer pricing adjustment can be made by the Commissioner and the timeframe for when a customs duty refund can be claimed.

    There was acknowledgment that these issues are not new issues, and do not arise from the introduction of Division 815; the issues also existed under the previous transfer pricing regime (the now repealed Division 13). SELC made representations that the government could continue to work together to consider the most consistent valuation approach for both income tax and customs purposes to the maximum extent that is possible. It was suggested that potential solutions could be explored through administrative processes.

    2. Issues and concerns raised

    The Chair explained that a case study had been provided to the ATO by a working group member however the provider had asked for it to be kept 'in confidence' to the agencies. The ATO, Treasury and Customs will discuss the case study out of session and provide feedback to the working group at the next meeting.

    Customs provided feedback from the WTO/OECD workshop in South Korea. Customs explained that there are 3 conferences around the world, with one for North American countries, one for European countries and one for South East Asia countries. Australia sits in the South East Asia group. The objective of the conference was for customs and revenue authorities to explore how they can each work together to complement each other's compliance. Over a 3 day period the group went through low level case studies dealing with mechanical rather than policy issues. Most attendees were from a non-transfer pricing background; however there was lots of concern from fellow participants regarding transfer pricing impacts on both tax revenue collection and customs. From the member countries it appeared that China, Japan and Korea understood the transfer pricing impacts more, and the need for the agencies to exchange information.

    It was discussed that, from a customs perspective, Australia was considered to be a leader in the region. The Customs practice statement was held up as a lead document in the region. The consensus was that there was no expectation of the agencies to merge, just to work together. The working group members noted that they don’t see how the conference findings explores the administration collaboration that the members seek.

    The external stakeholders stated that they are seeking an explanation at what might occur when an ATO audit results in transfer pricing adjustments. They suggested that the ATO and customs discuss the administrative procedures that may occur.

    The ATO explained that there has been a general decrease in the number of cases where mischief is identified in the purchase price of goods. There is an increasing use of profit based methods due to the increasing complexity of businesses making it more difficult to allocate the adjustments. The FCAI member referred to paragraph 3.17 of the EM to subdivision 815-B where it stated that in the case of an amended assessment the Commissioner must attribute the arm's length conditions to the value of individual components that form part of the tax equation. The member stated that the initial policy intention was for that to be embodied into the legislation, as assurance to that effect was given in front of the Senate committee, but for some reason that did not happen. As such the Senate committee gave the responsibility to Customs, Treasury and the ATO to come up with a solution.

    A member noted the different environment in the UK. HMRC had addressed this issue as customs and the revenue department are in the one organisation. As such, the UK tax legislation refers to the underlying 'transaction' which helps overcome the customs disconnect. It was discussed that for Australia that disconnect is covered in the EM not in the legislation.

    The members noted that the issue was inherently covered in Division 13 as the term 'consideration' was used. The members stated that Division 815-B is more nebulous as there is no legislative requirement to specify the adjustments. The ATO explained that as the use of profit methods was more prevalent in recent years, due to the increasing complexity of cases both in terms of size and business functions, compared to the traditional methods; therefore it can be inherently more difficult in some cases for the ATO to provide a breakdown that customs could use. It was mentioned that under Division 13 the ATO was required to tell the taxpayer what the adjustments related to and that after an audit they had all the numbers to adjust the correct amounts. The ATO explained that in most cases, but not all cases, the ATO may be able to give customs the adjustments relating to dutiable imports based on accurate calculations or an allocation based on a guesstimate derived from quantum. Either way, the ATO is still required to prepare and provide position papers to taxpayers detailing its analysis around the identified transfer pricing mischief.

    The members noted that the Customs Regulations 2015 were currently being drafted. The ACBPS explained that the Regulations were being updated due to the sunsetting of legislative instruments. The intent was therefore at having the Regulations transposed; it was not an opportunity for policy considerations.

    Guidelines for safe harbours were suggested by the members; however the ATO stated that they were reluctant to provide legal safe harbours, but may provide administrative safe harbours for risk. However, any safe harbours would not be a guarantee against compliance activity.

    Members discussed the Canada memorandum D13-3-6 'Income tax transfer pricing and customs valuation' previously supplied by the Crowe Horwath representative. A member made reference to paragraph 109 where it stated that Canada customs would accept "transfer prices established through an APA negotiated between income tax and the taxpayer as a price paid or payable, but will adjust for subsection 48(5) of the Customs Act additions and deductions, as required". The ATO mentioned that the issue Australia is facing refers to backward or back year adjustments; therefore the document doesn’t provide any solutions to the issues faced. It was suggested by members that the ATO and customs prepare a similar document to that prepared by Canada. The ATO responded that most taxpayers with APAs most likely also have VAs so that issue isn't as relevant.

    The ATO asked the members how often they see these cases (across any industry) and what the scale of the dollar amounts are. Most members stated that at this stage they don’t have any examples as the issue wasn’t prevalent with Division13, as it will be more of an issue in the future. The potential issues relate to prospective Division 815-B audits. They noted that the issue won't be major as long as the transfer pricing adjustment is referenced to an underlying transaction of shipments. The Hunt & Hunt member stated that he will approach a client in the motor vehicle industry to see if they are willing to be used as a redacted case study.

    It was suggested that perhaps the taxpayer could allocate the adjustments themselves as they know their business and what the costs relate to. The ATO stated that that would not be acceptable. Alternatively, the members were very keen on having the ATO state what the adjustments relate to. The ATO mentioned that even if the ATO could provide a breakdown of what the adjustments relate to, Customs would still need to go through their own review, analysis and determine the dutiable price. It was suggested that this may assist customs as a starting point. The ATO again reiterated that all the agencies were very keen for the externals to volunteer some case studies where the agencies have worked together to reach agreement so the issues could be clearly understood. The ATO stated even though these cases may entail adjustments under the old tax law, the principles are the same and the past would be a reasonable proxy of the future.

    Customs explained that they currently have between 10-15 applications per year for VAs relating to transfer pricing; therefore it is difficult for them to come up with a general rule. However Customs is in the best place to see how many refunds/disclosures they get each year to see the how many cases relate to transfer pricing adjustments and will follow up on this.

    The FCAI representative stated that the industry wants the three agencies to come up with an administrative solution.

    3. Options for further exploration

    It was suggested that case studies would provide insight regarding situations where the tax authority's determinations has assisted in customs valuation.

    4. Action items

    Action Item number


    Action item name

    Provide a possible case study from the motor vehicle industry


    Russell Wiese to follow up with his client



    Expected delivery date

    April 2015

    Action Item number


    Action item name

    Gather customs data on the number of refunds/disclosures that are in relation to transfer pricing adjustments


    Thomas Lees



    Expected delivery date

    May 2015

    Action Item number


    Action item name

    What is ATO prepared to provide in an audit adjustment that references dutiable imported goods


    Daryl Cornish



    Expected delivery date

    May 2015

    Next meeting

    The next meeting is scheduled for 22 May 2015

      Last modified: 13 Jul 2015QC 46299