We focus on income or profits generated in Australia that are not being subjected to domestic tax due to non-arm's length conditions of international related party dealings. For information on concept and risk, see International transfer pricing – concepts and risk assessment.
Situations that attract our attention include entities entering into financing arrangements with international parties on non-commercial terms that generate excessive interest deductions or non-recognition of income in Australia.
We are seeing instances where the terms and conditions of related party financing arrangements in the property and construction industry give rise to a transfer pricing benefit. We will review these arrangements having regard to the options realistically available to the entities at the time.
We are seeing instances of related-party service fees being paid offshore that do not meet the benefits tests required for deductibility in accordance with TR 1999/1 concerning transfer pricing for intra-group services.
We are concerned with arrangements that mischaracterise transactions as the provision of management services where, in substance, all functions in relation to the offshore entity are either performed by staff in Australia or outsourced to third party providers that are directed by the Australian employees. These arrangements may cause a transfer pricing benefit to arise and may trigger other anti-avoidance provisions.
We are concerned with arrangements where pre-existing customer and supplier contracts or relationships are moved from an Australian entity to an offshore entity creating a transfer pricing benefit. We will seek to understand the commercial rationale for the change and seek evidence to support the arm's length nature of the transaction.
We are concerned about business restructures that shift Australian assets or operations offshore without arm's length compensation or appropriate recognition for their inherent underlying commercial value.
We are concerned about offshore hubs that derive high profits from marketing or procuring goods or services for Australian operations.
For information on record keeping see, PCG 2017/2 Simplified transfer pricing record-keeping options.
For information on our compliance approach, see PCG 2017/4 ATO compliance approach to taxation issues associated with cross-border related party financing arrangements and related transactions.Income not subjected to domestic tax due to non-arm's length conditions of international related party dealings.