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Australia: Transfer pricing rules updated to align with OECD guidelines

Australia: Transfer pricing rules updated

The Australian Taxation Office (ATO) today, 29 July 2020, issued a release regarding changes to transfer pricing law—specifically that the Australian transfer pricing rules are to be interpreted to “achieve consistency” with the Organisation for Economic Co-operation and Development’s (OECD) Transfer Pricing Guidelines.

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The amendments, contained within the Treasury Laws Amendment (2019 Measures No. 3) Act 2020, will be applied retroactively for income years starting on or after 1 July 2017.

According to the ATO release, the reference to the OECD Transfer Pricing Guidelines in subsection 815-135(2) of the Income Tax Assessment Act 1997 (Cth) has been updated from the 2010 edition to the 2017 edition. The ATO stated that the update is part of Australia’s ongoing commitment to strengthen the transfer pricing provisions in line with international “best practice.”

The ATO stated it would be updating its guidance material that references the previous 2010 OECD Transfer Pricing Guidelines and the base erosion and profit shifting (BEPS) Actions 8-10 report to align with this amendment.

Background

The 2017 OECD Transfer Pricing Guidelines include revisions made as a result of:

  • Aligning transfer pricing with value creation
  • BEPS Actions 8-10 final reports of the OECD
  • Revisions to Chapter IX of the guidelines concerning business restructurings

This guidance material is relevant for determining the arm’s length conditions in respect of multinational enterprises’ cross-border dealings.

The 2017 OECD Transfer Pricing Guidelines are commonly referred to by taxpayers and retroactive application of these measures would provide certainty for taxpayers and advisors by commencing shortly after the OECD’s Committee on Fiscal Affairs adopted the 2017 Transfer Pricing Guidelines.

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