Arm's length methodologies

There are several internationally accepted methodologies that your business can use to comply with the arm's length principle. Australia's transfer pricing rules do not prescribe any particular methodology or preference to arrive at an arm's length outcome. You should seek to adopt the method that is best suited to the circumstances of each case.

Whatever method you use should give a commercially realistic outcome. It is generally expected that a reasonable business person would seek to:

• maximise the price received for supplying property or services, considering their business strategy, economic and market circumstances, and minimise the costs associated with acquiring property or services
• be adequately rewarded for any activities carried out.

For more information about the arm's length methodologies, see Chapter 3 of Taxation Ruling TR 97/20 Income tax: arm's length transfer pricing methodologies for international dealings.