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, or
    • when you are reviewing the arrangement before or at the time of preparing the tax returns, and
  • it 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 electronic or written materials 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. The review of those international dealings before tax returns are prepared is regarded as 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.

However, the documentation created in the ordinary course of the taxpayer's business and used to establish the prices for international related party dealings - for example, invoices and orders - will not generally be regarded as 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 for 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. Therefore, taxpayers need to exercise commercial judgment in assessing their own compliance with the arm's length principle.

    Last modified: 21 Feb 2012QC 25356