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OECD transfer pricing guidance: Detail for Australian business

OECD transfer pricing guidance for Australian business

The guidance is critical for entities that have international-related party dealings involving financial transactions, treasury services, guarantees and captive insurance arrangements.

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A highly-anticipated transfer pricing guidance has been released, which requires taxpayers to revisit intra-group financial transactions.

The Transfer Pricing Guidance on Financial Transactions, released in February 2020 by the Organisation for Economic Cooperation and Development’s (OECD), details final recommendations regarding the arm’s length treatment of various financial transactions among related parties.

This follows release of the draft guidance in July 2018 and applies transfer pricing methods to inter-company loans, cash pools, financial guarantees, hedging transactions, and captive insurers.

The guidance is pertinent for Australia given the Australian Taxation Office’s (ATO) strong focus on intra-group loans, particularly since its success in Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCAFC 62.

The recommendations will be included into the OECD Transfer Pricing Guidelines in relevant sections and as such, will ultimately constitute relevant guidance material for both taxpayers and the ATO to consider under Australian law when undertaking a transfer pricing analysis.

The interaction of this new OECD guidance with current OECD Guidelines, which has been interpreted in a number of relevant cases either involving financial transactions or involving the potential reconstruction of terms and conditions of an agreement, such as Glencore Investment Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2019] FCA 1432, will require delicate consideration.

We discuss some of these in greater detail in the PDF.

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KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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