Practice Statement Law Administration

PS LA 2014/3

Simplifying Transfer Pricing Record Keeping

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1. What is this practice statement about?
2. What is the context behind this practice statement?
3. How do you tell when a taxpayer has elected to apply a STPRKO?
4. What do you do when a taxpayer has elected to apply a STPRKO?
5. More information

This practice statement is an internal ATO document, and is an instruction to ATO staff.

Taxpayers can rely on this practice statement to provide them with protection from interest and penalties in the following way. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty. Nor will they have to pay interest on the underpayment provided they reasonably relied on this practice statement in good faith. However, even if they don't have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it.

This Law Administration Practice Statement provides guidance on the application of the simplified transfer pricing record keeping options

1. What is this practice statement about?

This practice statement provides guidance when considering whether to undertake compliance action with respect to cross border conditions between entities (CBCBE) for the purposes of Subdivisions 815-B and 815-C of the Income Tax Assessment Act 1997 where entities have applied one or more simplifyied transfer pricing record keeping options (simplification options) in Practical Compliance Guideline PCG 2017/2 Simplified Transfer Pricing Record Keeping Options.

2. What is the context behind this practice statement?

For income years commencing on or after 29 June 2013, Australia's modernised transfer pricing rules apply to CBCBE, including Subdivision 284-E of Schedule 1 to the Taxation Administration Act 1953 (TAA)[1] which deals with transfer pricing documentation.

Subdivision 284-E does not mandate the preparation or keeping of documentation. However, if the requirements in section 284-255 are not met it is presumed that the entity does not have a reasonably arguable position. As a direct result, a higher base penalty amount will apply.

Documentation that satisfies the requirements of Subdivision 284-E can impose an administrative burden on an entity disproportionate to their risk of not complying with the transfer pricing rules. The ATO has developed some simplification options that eligible entities can elect to apply to their relevant CBCBE to minimise their record keeping costs.

The application of these options to CBCBE does not limit or waive the operation of the law, but acknowledges that the entity has demonstrated a willingness to comply by choosing to apply and disclose an option.

The Commissioner has provided an assurance in PCG 2017/2 that if an entity has elected to apply a simplification option the ATO will not allocate compliance resources or take other compliance action to examine the transfer pricing records relevant to the transactions or arrangements that a simplification option is applied to, beyond confirming the entity's eligibility to elect to apply an option.

The Commissioner's assurance applies for income years commencing:

On or after 29 June 2013 for the small taxpayers, distributors, intra-group services and low-level inbound loans options
On or after 1 July 2015 for the materiality, management & administration services, technical services and low-level outbound loans options.

3. How do you tell when a taxpayer has elected to apply a STPRKO?

You can ascertain whether an entity has elected to apply one of the simplification options by checking whether code 7 is shown for the 'percentage of dealings with documentation code' within the relevant label(s) on the entity's International Dealings Schedule (IDS).

This code was unavailable for the 2014 income year. If you are considering reviewing an entity's CBCBE for the 2014 income year, you will be notified by the entity of their eligibility when you initiate contact.

Entities may still have an opportunity to elect to apply the simplification options after lodging their IDS, as long as they meet the eligibility criteria for the options for the relevant income year.

4. What do you do when a taxpayer has elected to apply a STPRKO?

If an entity has elected to apply one or more simplification option (whether in the IDS or post lodgment), then you are not to review the records that relate to the relevant CBCBE's of that entity for the income years that fall within the assurance given by the Commissioner beyond conducting a check to confirm that entity's eligibility to elect the option(s) they have.

An entity is expected to have kept contemporaneous documents that corroborate their eligibility as mere assertion will not suffice. They do not have to be comprehensive, but should simply and sensibly explain how and why the entity was eligible to apply an option or options.

You should refer to PCG 2017/2 for details as to the relevant options, the eligibility requirements and their conditions of operation.

5. More information

For more information, see:

Practical Compliance Guideline PCG 2017/2 Simplified Transfer Pricing Record Keeping Options
Simplifying transfer pricing record-keeping - frequently asked questions

Amendment history

Date of amendment Part Comment
10 May 2018 All Updated to reference PCG 2017/2
14 January 2016 All Updated to new LAPS format and style.
Inclusion of further options.

Date of Issue: 17 December 2014

Date of Effect: 1 July 2013

All legislative references in this practice statement are to Schedule 1 of the TAA unless otherwise indicated.

File 1-52IVB0G

Related Rulings/Determinations:
TR 2014/8

Other References:
Simplifying Transfer Pricing Record Keeping

Legislative References:
ITAA 1997
ITAA 1997 Subdiv 815-B
ITAA 1997 Subdiv 815-C
TAA 1953
TAA 1953 Sch 1 Subdiv 284-E
TAA 1953 Sch 1 284-255

Business Line:  PGI

PS LA 2014/3 history
  Date: Version:
  17 December 2014 Original statement
  14 January 2016 Updated statement
You are here 10 May 2018 Updated statement
  16 January 2019 Updated statement