Transfer pricing and small business simplification: Australia introduces “safe harbour”
By Ross D. R. Forrester, Westcourt Chartered Accountants
The Australian government has made significant steps in simplifying tax compliance for overseas persons doing business in Australia.
Where a person satisfies certain safe harbour rules and they notify the Australian Tax Office (ATO) in their tax return, the ATO will not “allocate compliance resources to review the covered transactions or arrangements specified in that option for transfer pricing purposes, beyond reviewing [their] eligibility to use the option [they] have applied.”
The options to be excluded from the transfer pricing documentation include:
1. small taxpayers (1 July 2013 onwards),
2. distributors (1 July 2013 onwards),
3. intra-group services (1 July 2013 onwards),
4. low-level inbound loans (1 July 2013 onwards),
5. materiality (1 July 2015 onwards),
6. management and administration services (1 July 2015 onwards),
7. technical services (1 July 2015 onwards), and
8. low-level outbound loans.
Difficulty applying the exemption
The introduction of these rules appeared, at first glance, to be a significant boon for many clients. However the exclusion of royalty or licence fees from excluded related party dealings creates a significant difficulty in implementing the law.
In particular, if a person has a royalty payment to a related party, where such payment is insignificant (for instance AUD 2,000), the whole administrative exclusion does not apply.
The same applies if a very minor payment is made to a country that is identified as a “tax haven”.
The requirement to create an election within the International Related Party Dealings Schedule as part of the client’s Income Tax Return is also problematic, especially as some clients are not aware of the need to create such a schedule (and view it to be optional).
Ross D. R. ForresterWestcourt Chartered Accountants, Perth, Australia
T: +61 08 9221 8811
Westcourt is an advice firm that has one focus: it makes family-owned businesses great. At Westcourt, they believe that family- owned businesses can, and should, be the primary drivers of employment, innovation and profits in Australia. Westcourt wants to be the catalyst for that change. By keeping this focus, Westcourt provides great advice. Its targeted approach gives it a deep understanding of how families in business operate, work and generate profits. The company has assisted families in business from a one-generation start-up to firms spanning five-generations that have left a permanent mark in the development of Australia. If you are seeking a firm that understands both families and business, talk to Westcourt.
Published: Spring 2017 l Photo: Colourbox.de