Managing Transfer Pricing risk in an ever-changing global economy
Any business involved in cross border transactions with a related party must have Transfer Pricing risk and compliance high on its radar, particularly given Australia has, what is commonly acknowledged to be, the strongest Transfer Pricing and anti-profit shifting regime in the world. For example, not only must Australian businesses involved in international related party transactions evidence the arm’s length nature of the costs associated with their international related party dealings (i.e. evidence that the pricing is comparable to what would have taken place between independent entities), they must also evidence that the dealings themselves are in accordance with the arm’s length principle (i.e. provide evidence that independent entities, seeking to maximise their own economic position, would have entered into a similar arrangement). While Australia’s Transfer Pricing provisions can place an onerous burden on companies involved in international related party dealings, PPM’s TP specialists have the breadth of experience and depth of expertise to help businesses navigate their way through this legislative minefield, in a practical and cost-effective manner.
It’s a common misconception that Transfer Pricing only impacts the ‘big end of town’ and that it only applies to specific transactions. While the ATO’s current area of audit focus is large multinationals with marketing hubs in low/no tax jurisdictions or the transfer of intellectual property between related parties, small to medium sized enterprises (SME’s) are gaining an increasing proportion of the ATO’s attention, with many SME’s simply unprepared for the extent of the ATO’s enquiries when it comes to a review of their international related party dealings. This is often due to the fact that many multinational SME’s operating in Australia are often small in comparison to their parent company and generally do not have the resources to dedicate the time necessary to comply with Australia’s Transfer Pricing provisions. However, although multinational SME’s operating in Australia may have a much smaller revenue base compared to other members of their multinational group, in the main, Australia’s Transfer Pricing requirements apply to SME’s in the same fashion they apply to larger multinationals, leading to instances where SME’s simply don’t have the resources or capability to comply with these challenging and complicated obligations.
At PPM, our Transfer Pricing experts are able to provide up to date, practical advice regarding your Transfer Pricing issues, advice that is both practical and able to be implemented and monitored. Our TP team’s focus is aimed at addressing the risk issues high on the ATO’s list of ‘TP concerns’, which are currently the use or transfer of intangibles and intellectual property, reassignment of IP as services and form over substance arrangements. The depth of technical expertise within our TP team is widely acknowledged, with PPM’s TP experts having been used by the ATO in their audit of international related party dealings, particularly in relation to assessing the arm’s length nature of IP, licensing and service arrangements within Australian subsidiaries of multinationals. While our TP experts have provided the ATO with assistance in this area, it is also a service we offer our clients (being a paper-based review of related party arrangements related to the provision of services and the use or transfer of IP).
While most TP advisors seek to evidence the arm’s length nature of international related party dealings between multinational entities on a ‘aggregated’ basis (using the TNMM methodology), PPM’s TP experts look at the dealings on a transaction basis – the preferred methodology of both the OECD and the ATO.
Some of the specific Transfer Pricing services PPM offers its clients include:
- Review of agreements related to the development or use of intellectual property (including patents, trademarks know how, branding, technical documents, marketing strategies etc.) and an assessment as to:
a) Whether independent parties would have entered into such an agreement, in comparable circumstances; and
b) Whether the pricing of the dealings referred to in the agreements is the result of the application of the arm’s length principle.
- Transfer Pricing Risk Review – This service is especially popular with clients who have their TP documentation prepared by the ‘Big 4’ and just want assurance that all TP risk has been addressed, given their TP documentation preparation process has generally progressed with limited Partner involvement. This service involves a quick review by one of PPM’s senior TP experts, a review that will either give you comfort that your TP documentation is ‘bullet proof’ or it will provide you with the areas of risk that need ‘shoring up’, areas of risk that can be addressed by the business in its own time frame prior to an ATO review.
- CbC compliance assessment and exemption assistance – There are significant inconsistencies between the CbC requirements within a multinational group, particularly regarding monetary thresholds and the impact of foreign exchange fluctuations on triggering CbC obligations within Australia. This can lead to situations whereby the parent entity is not required to prepare and lodge CbC documentation in its home jurisdiction (due to the fact that global turnover is less than €750 million), however, the Australian calculation of global turnover exceeds AUD $1 billion (thus triggering a CbC reporting obligation) simply due to foreign exchange fluctuations and a low dollar. PPM’s Transfer Pricing experts can assist companies identify and address this issue, including requesting an exemption from the Commissioner regarding CbC reporting obligations.
- Preparation of Transfer Pricing documentation – PPM’s Transfer Pricing specialists can assist both SME’s and larger multinational enterprises to prepare appropriate Transfer Pricing documentation, including master files and local files. We can also assist SME’s to assess whether they comply with any of the concessions contained in the ATO’s ‘safe harbour’ rules, aimed at simplifying the Transfer Pricing documentation burden for the SME market.
- Tax Audit Assistance – With 10 years’ experience as an Auditor within the ATO, PPM’s Transfer Pricing experts have the internal knowledge of the ATO’s processes and procedures and the deep technical expertise to assist our clients navigate their way successfully through an ATO risk review or audit. This enables PPM to achieve the best possible outcome for our clients, while minimising exposure to additional tax and penalties.
At PPM, Specialisation is the Key to unlocking exceptional outcomes for clients. This expert focus on specific tax related matters allows PPM to provide our clients with an unrivalled depth of expertise, delivered by senior acknowledged expert’s unrivalled expertise. When PPM specialists provide Transfer Pricing advise, you aren’t handed off to more junior staff at the earliest possible opportunity. Our Director approach to service delivery provides our clients with the confidence that at every stage of our engagement, they have access to considered and experience-based advice from the most senior of experts, a refreshing change from the ‘helicopter’ approach Partners often embraced within the ‘Big4’ firms.
To discuss your specialist Transfer Pricing needs further, please contact Tracey Murray 3557 2111 or firstname.lastname@example.org .