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Question 15

Last updated 15 February 2022

This question seeks information to assess the specific transfer pricing risk of Australian taxpayers receiving or paying incorrect or no recharge amounts for providing or receiving employee share-based remuneration to employees of non-resident subsidiaries. We want to ascertain the level of recharge amounts being received or paid by Australian taxpayers and the pricing methodology used in respect of these amounts.

The dollar amounts or values asked for in this question are all based on your income tax records.

Under employee shared-based remuneration plans, a multinational group may remunerate employees by providing phantom shares in the listed parent company of the group, shares, share options or share rights.

Recharge amount is the compensation you received or paid in return for providing the employees with share-based remuneration. The recharge amount does not include any compensation received or paid in relation to the costs of administering an employee share-based plan since this would be compensation for services that you would report at question 8.

Employees are individuals who provide personal services or labour to an entity and would be regarded as employees of that entity for legal or tax purposes. For example, employees would include the directors of a non-resident subsidiary.

Where an employee holds a position of employment in both an Australian taxpayer and a non-resident subsidiary of the taxpayer, consideration should be given to the 'capacity' in which the share-based remuneration is received. For example, where an individual is an employee of the Australian taxpayer and a director of a non-resident subsidiary, any share-based remuneration paid by the Australian taxpayer to the individual in their capacity as a director of the non-resident subsidiary would be included at this question. This accords with the approach taken in Article 16 of the OECD Model Tax Convention regarding the allocation of taxing rights (which provides that payments received by a resident of a contracting state in their capacity as a director of a company resident in the other contracting state may be taxed in that other state).

For more information about share-based remuneration plans for employees of non-resident subsidiaries, including application of the arm's length principle to arrive at an appropriate recharge amount, see OECD Tax Policy Studies No. 11 (2005) - The Taxation of Employee Stock Options (particularly Chapter 4 - Impact on Transfer Pricing). You can buy this at oecdbookshop.orgExternal Link

To complete this question:

  • identify the share-based employee remuneration provided to or received from international related parties
  • determine whether there is a recharge amount paid or received in relation to the share-based remuneration provided to your employees
  • determine the total amount of the recharge amounts paid by you during the income year
  • determine the total amount of the recharge amounts received by you during the income year.

If you did provide (or receive) share-based remuneration to any employees of an international related entity during the income year, answer Yes at A item 15 and complete the following:

  • At C, write the total recharge amounts you claimed as deductions for the income year.
  • At D, write the total recharge amounts you included in your assessable income for the income year.

Question 16

This question seeks information to understand whether there was a cost contribution arrangement for developing, producing or obtaining assets or rights with an international related party.

TR 2004/1 Income tax: international transfer pricing – cost contribution arrangements, paragraph 14 provides further detail on cost contribution arrangements. You should not include any cost contribution arrangements which are pure service arrangements, as described in TR 2004/1.

If you had a cost contribution arrangement for developing, producing or obtaining assets or rights with any international related parties, answer Yes at A item 16.