Recent Developments in Transfer Pricing and the Taxation of Multinational Companies in Australia
In Brief—Corporate Tax Reforms
- The past 12 months have seen the introduction of significant legislative reform in respect of "tax avoidance". The focus has been on transfer pricing arrangements between related members of multinational corporate groups.
- Part of the recent legislative reforms was the incorporation of the Organisation for Economic Co-operation and Development's Transfer Pricing Outcomes with Value Creation, Actions 8-10-2015 Final Report, which will substantially impact the construction of the "arm's length principle". The arm's length principle is the relevant test in determining whether a transfer pricing arrangement has been taxed correctly.
- A new "Diverted Profits Tax" was introduced as a further means to disincentivise the employment of contrived transnational transactions to reduce Australian tax payable. The tax may be imposed on profits generated from 1 July 2017.
- The Australian Tax Office is giving heightened attention to transfer pricing, resulting in more transnational funding and supply arrangements being investigated. The ATO's confidence was recently bolstered by its success before an Australian Court of Appeal concerning a re-assessment of a sizable transnational funding arrangement between related companies.