Question:
International transfer pricing
Answer:
Recent changes are outlined below:
July 1, 2022
- Loss carry back for eligible companies extended to cover 2023 income year.
- Professional firm profits diverted to the professional's spouse or other associates to be reviewed under new Tax Office guidance.
- Corporate collective investment vehicle legislative regime introduced.
- Temporary full expensing of depreciating assets extended to include 2023 income year.
- Depreciable assets of a company joining a tax consolidation group have tax costs setting rules modified for assets depreciated under temporary full expensing rules.
December 9, 2021
- Reduced Pandemic leave disaster payment of $750 per week made available through to 30 June 2022.
August 5, 2021
- COVID-19 Disaster Payments are non-assessable non-exempt income in 2021 income year and later. Payments phasing out as vaccination rates increase.
July 1, 2021
- New Investment Engagement Service launched for businesses planning significant new investments in Australia.
- Tax Office small business independent review service made permanent for businesses with turnover < $10m, for income tax, GST, exercise, luxury car tax, wine equalisation tax and fuel tax credits. Requested before amended assessment issued.
- Small business income tax offset for individuals increased to provide a reduction of 16% for a tax payable up to $1,000.
- Self-managed superannuation funds can now have six members, increased from four members previously.
July 1, 2021
- Some COVID -19 state and territory business grants received by small and medium enterprises are non-assessable, non-exempt income for 2021 and 2022 income years.
- Certain state, territory and local government financial support for individuals and businesses suffering COVID-19 impacts made exempt where businesses have turnover less than $50 million and only in eligible programs.
March 31, 2021
- JobKeeper payments scheme ended.
October 5, 2020
- Boosting apprenticeship commencements subsidy (up to 50% of apprentice's wages) is assessable income.
June 4, 2020
- Homebuilder grant for new home or substantial renovation construction is not subject to income tax.
April 1, 2020
- COVID-19 cash flow boost payments are not subject to income tax
Australian businesses that have international dealings with related parties will face significantly increased red tape to complete the new International Dealings Schedule and manage the impacts of retrospective legislation on transfer pricing rules.
Businesses with related party dealings over $2 million will be required to complete the new schedule which is 12 pages long and replaces the existing Schedule 25A and Thin Capitalisation Schedules. Compliance costs will significantly increase because of the time required to draft the lengthy Schedule which provides disclosure to an extent previously only expected during an audit.
The proposed schedule has not been 100% finalised and is expected to be imposed for the 2012 income year tax returns.
A Government Consultation Paper was released during November on the contentious issue of transfer pricing.
Transfer pricing is the term used to describe the pricing of goods, services and provision of finance between related businesses in two separate countries. Tax authorities seek to prevent multi-nationals from shifting profits to low tax jurisdictions by the manipulation of transfer pricing levels.
Changes forecast in the Consultation Paper include:
+ Where double tax agreements apply, retrospectively amending the law to allow transfer pricing adjustments back to July 2004;
+ Requiring tax payers to maintain contemporaneous records to justify transfer pricing methods and imposing penalties where there is a lack of records;
+ Inclusion of a de minimis rule (level of trade below which the rules will not apply) for the requirement for maintaining contemporaneous records;
+ Approved transfer pricing methods with their associated selection criteria being set out in the legislation;
+ Removal of extremely wide discretionary powers currently held by the Tax Office to determine what represents and arm-length consideration;
+ Profit allocation rules considering the totality of arrangements between the related entities rather than just looking at the prices charged for particular goods, services or financial accommodation; and
+ Removing the unlimited time period currently available to the Tax Office to make transfer pricing adjustments.
The release of this Consultation Paper follows a major loss for the Tax Office in an appeal heard by the full bench of the Federal Court in SNF (Australia) Pty Ltd. Apparently, the Tax Office and the Government didn’t like the outcome!
WTB 1799, TaxVine No 43, 4 November 2011.
