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Appendix 9: Percentage of dealings with documentation

Last updated 7 August 2014

'Percentage of dealings with documentation' refers to the aggregate dollar amount of transactions reported at specific questions in the schedule for which you have relevant documentation (as per TR 98/11) expressed as a percentage of total dollar value of transactions reported at each specific question.

Transfer pricing documentation

We advocate through various guides, a four-step process that links the arm's length principle, questions of comparability and the transfer pricing methodologies.

There is a business risk of a transfer pricing review if you do not have proper processes to determine arm's length prices and cannot demonstrate to us the methods used to determine the prices. The arm's length principle involves comparing what a business has done and what a truly independent party would have done in the same or similar circumstances. Documentation is only one factor in determining whether to commence a review.

The fourth column, at label F (items 6 to 18) requires estimates of the percentages of the total dollar value of the related-party international dealings for which you have written documentation.

We will also consider the quantum of the related-party transactions and the commerciality (for instance, the level of profitability). We might choose not to audit a business which has a low dollar value of related-party transactions that appear to be at arm's length prices, even though the business recorded code '1' for percentage of dealings with documentation, because the business did not maintain contemporaneous documentation.

Transfer pricing - the four-step process

Transfer pricing - the four-step process

The selection of the most appropriate arm's length pricing methods for your related-party international dealings is described in step 2 of TR 98/11.

We recommend you maintain documented records that support your international dealings in determining that the arm's length principle has been applied.

The type of documentation required in international dealings is discussed below and described in step 1 of TR 98/11.

Documentation should take the form of a file maintained with details such as:

  • a description of the business and the business model
  • how transactions with international related parties fit in with your business model
  • how your international dealings are affected by industry, economic conditions or other influences
  • whether you are undertaking any business strategy that influences your decision making, such as a market penetration strategy - this detail is commonly found in a functional analysis report.

The file should also contain specific documentation to support the transfer pricing methodology selected and indicate that it reflects an arm's length approach. Specific documentation could include price lists, budgets, studies, plans and projections, correspondence, working papers and agreements with related parties that reflect how you set and recorded prices.

Added to the documentation file should be records on what action has been taken to confirm and test that the price you have set and recorded reflects an arm's length outcome - for example, doing a benchmark study.

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
    • when you are reviewing these arrangements prior to or at the time of the preparation of tax returns
  • the documentation 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 material 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. To review those international dealings before you prepare your tax returns is 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.

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

To determine the code for the percentage of your dealings with international related parties

At label F (questions 5 to 13, and 17) specify the code for the percentage of your dealings with international related parties for which you have supported the arm's length outcome with written documentation. Write the relevant code from the table below.

If after exercising commercial judgement you have decided to aggregate and test the arm's length nature of multiple international related party dealings through the application of the transactional net margin method on a whole-of-entity basis, then do both of the following:

  • write code 12 at label E for all the questions from 5 to 13, and 17, to show 'transactional method on a whole of entity' as the main pricing methodology.
  • write the applicable code from the list below at label F to indicate the percentage of dealings with documentation for questions 5 to 13, and 17.

If, in exercising your commercial judgement you decide not to apply a whole of entity transactional net margin method analysis, you should test and document your international related party dealings separately and use one of the following numeric codes to state the percentage of the total of the dollar value for which you have documentation.





1% to less than 25%


25% to less than 50%


50% to less than 75%


75% to less than 100%




You may calculate the percentage on the basis of a reasonable estimate.

A statistical sample may be an appropriate method of calculating the relevant percentage, provided the sample selection and mathematical consideration are consistent with generally accepted statistical methods.

Keep your working papers if you have used a sampling process to make this estimate.