Since the ATO released its Transfer Pricing Guidance package in 2014, their online guide on ‘Simplifying Transfer Pricing Record Keeping’ has been changed several times. The most recent version from 2017 includes further guidance on how to apply the simplified record keeping options.
The latest guidelines
The ATO’s Guide now outlines eight transaction types or activities identified as low risk for International Related Party Dealings (IRPDs) and specifies criteria for businesses to self-assess their eligibility:
- Small taxpayers
- Distributors
- Intra-group services
- Low-level inbound loans
- Low-level outbound loans.
- Materiality
- Management and administration services
- Technical services
Note that generally businesses will not be eligible for options 1-5 above if they have derived sustained losses, undergone a restructure within the year, or conducted related-party dealings with entities in specified countries.
Summary of eligibility criteria for Simplified Transfer Pricing Record Keeping
- Small business taxpayers
Businesses with an annual turnover of up to $25 million will not be able to exercise the option of simplifying if they have related-party dealings royalties, licence fees or research and development arrangements, or specified service related party dealings greater than 15% of their turnover. Additionally, they cannot be distributors. The option is not applicable to related party financial transactions and international related-party dealings (IRPDs) of a capital nature. - Distributors
Distributors with a turnover of up to $50 million who do not have related party dealings involving royalties, licence fees, or research and development agreements and do not have a profit before tax to turnover ratio of less than 3% are eligible to opt in. However international related-party financial transactions and IRPDs that are capital in nature are not covered by the option. - Intra-group services
Intra-group services up to $1 million are eligible, as are some above $1 million but: For services you receive, the total amount charged must be no more than 15% of the total expenses or for services you provide, the amount must be no more than 15% of the total revenue. Additionally, the mark-ups on the services need to be at least 7.5% for those provided or at most 7.5% for those received. However, this option is not applicable to other IRPDs, related party financial transactions and IRPDs of a capital nature. - Low-level inbound loans
Those with a loan balance of less than $50 million throughout the financial year are able to opt in if their interest rate is in line with the Reserve Bank of Australia’s relevant indicators and their funds provided under the loan, and their associated expenses are paid in Australian dollars. Exclusions apply however, to some IRPDs and other related-party deals. - Low-level outbound loans
Those with a loan balance of less than $50 million throughout the financial year are able to opt in if the interest rate for each of their loans is not less than 3.70% in FY2019 (or 3.79% in FY2018) and the funds provided under their loans and their associated expenses are denominated in Australian dollars. However, this option is not applicable for inbound related party loans, other IRPDs, related party financial transactions & IRPDs of a capital nature. - Materiality
Companies with IRPDs of not more than 2.5% of the total turnover of their Australian economic group are eligible for this option if they do not have related party dealings in specified countries nor related parting dealings involving royalties, licence fees or research and development arrangements. However, IRPDs that are capital in nature are excluded. - Management and administration services
If the Australian company’s income from and expenditure on management and administration services is not more than 50% of the total IRPDs of its Australian economic group, this option is available providing the mark-up for services received is not more 5%, the mark up for services rendered is at least 5%, and the company does not have related party dealings in specified countries. Again, other IRPDs, related party financial transactions and IRPDs of a capital nature are excluded. - Technical services
If the income from and expenditure on technical services is not more than 50% of the total IRPDs of the taxpayer’s Australian economic group, this option is available providing the mark-up for services received is not more 10%, the mark up for services rendered is at least 10%, and it does not have related party dealings in specified countries. As for the previous option, other IRPDs, related party financial transactions and IRPDs of a capital nature are excluded.
Before relying on the ATO ‘Simplified Transfer Pricing Record Keeping’ Guide
Before relying on the ATO guide, businesses must consider all relevant ATO criteria and definitions. They can then disclose their eligibility and opt in to the simplified record keeping scheme by notifying the ATO through their International Dealings Schedule.
If you are not familiar with Australian Transfer Pricing rules, please see our article Australia’s transfer pricing requirements 2018.
Transfer pricing can be a complex area and seeking professional guidance is recommended. Accru Felsers assists many multi-nationals, especially from Germany, China, Japan and Australia, with transfer pricing and has a successful track record in this area. Please contact Glenda Nixon or Maggie Chang, our transfer pricing specialists, if you have any questions or would like our assistance.
