The choice of method you make is open to scrutiny through internal governance processes, external audit or ATO enquiry. It is therefore important that the decision-making process you follow should include a review mechanism that tests the robustness of the chosen method, the evidence that it is fair and reasonable and the documentation that demonstrates you have made the right choice.
It is preferable, where possible and practicable, that the review of the method and reasons for its choice should be undertaken by someone other than the original decision-maker. The review process should be one which examines the decision and the documented reasons for decision, taking account of all the guidance identified in this document.
The review process should also consider the quality and degree of confidence in the information and evidence supporting the decision-making process. The following scale may assist.
Low Quality 1 |
Medium quality 2 |
High quality 3 |
|---|---|---|
No analysis and documentation on business activity and use of acquisitions |
Limited analysis and documentation on business activity and use of acquisitions |
Sound and detailed analysis and documentation on business activity and use of acquisitions |
No analysis and documentation of business structures and internal cost allocation methods |
Limited analysis and documentation of business structures and internal cost allocation methods |
Sound analysis and documentation of business structures and internal cost allocation methods |
No comparables used |
Broad, inexact comparables used |
Comparability undertaken with reasoned commentary |
No assessment of distortive factors or irrelevant data inclusion |
Limited assessment of distortive factors or irrelevant data inclusion |
Full and detailed assessment of distortive factors or irrelevant data inclusion |
No reasoned and documented judgment on fair and reasonable |
Limited reasoning and documentation of judgment on fair and reasonable |
Fully reasoned and documented judgment on fair and reasonable |
Assurance
After you have applied the methodology outlined here, you may seek clarification that your intended methodology is fair and reasonable. You can do this by applying for a private binding ruling. If you apply, it would be helpful to include the answers to questions listed in Assessing whether the method is fair and reasonable.