Income Tax Assessment Act 1997



Division 815 - Cross-border transfer pricing  

Subdivision 815-B - Arm ' s length principle for cross-border conditions between entities  

Operative provisions

SECTION 815-125   Meaning of arm ' s length conditions  

The arm ' s length conditions , in relation to conditions that operate between an entity and another entity, are the conditions that might be expected to operate between independent entities dealing wholly independently with one another in comparable circumstances. Most appropriate and reliable method to be used

In identifying the *arm ' s length conditions, use the method, or the combination of methods, that is the most appropriate and reliable, having regard to all relevant factors, including the following:

(a) the respective strengths and weaknesses of the possible methods in their application to the actual conditions;

(b) the circumstances, including the functions performed, assets used and risks borne by the entities;

(c) the availability of reliable information required to apply a particular method;

(d) the degree of comparability between the actual circumstances and the comparable circumstances, including the reliability of any adjustments to eliminate the effect of material differences between those circumstances.


The possible methods include the methods set out in the documents mentioned in section 815-135 (about relevant guidance material).

Comparability of circumstances

In identifying comparable circumstances for the purpose of this section, regard must be had to all relevant factors, including the following:

(a) the functions performed, assets used and risks borne by the entities;

(b) the characteristics of any property or services transferred;

(c) the terms of any relevant contracts between the entities;

(d) the economic circumstances;

(e) the business strategies of the entities.

For the purposes of this section, circumstances are comparable to actual circumstances if, to the extent (if any) that the circumstances differ from the actual circumstances:

(a) the difference does not materially affect a condition that is relevant to the method; or

(b) a reasonably accurate adjustment can be made to eliminate the effect of the difference on a condition that is relevant to the method.


Disclaimer and notice of copyright applicable to materials provided by CCH Australia Limited

CCH Australia Limited ("CCH") believes that all information which it has provided in this site is accurate and reliable, but gives no warranty of accuracy or reliability of such information to the reader or any third party. The information provided by CCH is not legal or professional advice. To the extent permitted by law, no responsibility for damages or loss arising in any way out of or in connection with or incidental to any errors or omissions in any information provided is accepted by CCH or by persons involved in the preparation and provision of the information, whether arising from negligence or otherwise, from the use of or results obtained from information supplied by CCH.

The information provided by CCH includes history notes and other value-added features which are subject to CCH copyright. No CCH material may be copied, reproduced, republished, uploaded, posted, transmitted, or distributed in any way, except that you may download one copy for your personal use only, provided you keep intact all copyright and other proprietary notices. In particular, the reproduction of any part of the information for sale or incorporation in any product intended for sale is prohibited without CCH's prior consent.