NTLG International Sub-group - Transfer Pricing Working Group

View meeting updates below:

  • Transfer Pricing Working Group meeting 5 September 2013

    Anthony Seve (KPMG) and Lyndon James (PwC) attended the Transfer Pricing Working Group (TPWG) meeting on 5 September 2013 as the Institute’s representatives.

    Issues discussed included:

    • The design of section A of the 2014 International Dealings Schedule (IDS). Issues were raised in relation to the structure of a number of IDS questions but in particular question 17 dealing with business restructures (which is very broad), section 18 dealing with branches and question 10 dealing with derivatives.
    • The Tier 3 project outline which focuses on the development of new public rulings and communication strategies associated with the new transfer pricing legislation. Key issues included the priority of the proposed rulings and the potential to issue pre ruling guidance. This later issue was noted as being very important to assist taxpayers to comply with the new law in the interim while the formal rulings were being developed. On the timing of the draft guidance, the priority is on documentation ahead of reconstruction and penalties. A draft of all 3 products is expected in March 2014 to be finalised by September 2014.
    • A scoping document relating to the application of s 815-130 of the ITAA 1997. In particular, the following points were noted:
      • The interaction of s 815-115 and s 815-130 including the importance of ensuring that limitations relating to the operation of the later section were not bypassed.
      • The important distinction between the substance of a transaction and the commerciality of a transaction.
      • The use of market data and the treatment of unusual transactions not found in the market place.

    A number of other points were raised for future discussion including the potential impact of reconstruction powers to transfer pricing documentation requirements and the resolution of potential double tax issues.

    If members have any questions on the above, they can email the Tax Group.

  • Transfer Pricing Working Group meeting on 4 July 2013

    Anthony Seve (KPMG) attended the Transfer Pricing Working Group (TPWG) meeting on 4 July 2013 as the Institute’s representative. (The TPWG is a working group of the National Tax Liaison Group (NTLG) – International Subgroup).

    Issues discussed included:

    • NTLG TPWG Scoping Document - Rewrite of TR 98/11: Income tax: documentation and practical issues associated with setting and reviewing transfer pricing in international dealings. Key issues covered in that ruling include consistency with OECD guidelines, effect of materiality, determining arm's length conditions, link between documentation and penalties, contemporaneous documentation, documentation for specific taxpayers including Joint Ventures, effect of non-related party transactions and price setting. In terms of analysing arm's length conditions there was a discussion of the relative impact of not having “open market analog” evidence given: 
      • Limited public comparable information being available
      • Evidence presented by the taxpayer of commercial reasons to have particular terms and conditions.
      It was noted that there was a need for TR 98/11 to continue to operate in relation to Division 13 / Subdivision 815A assessments that will be raised in the future.
    • NTLG TPWG Scoping Document - Rewrite of TR 98/16: Income tax: international transfer pricing - penalty tax guidelines. It is proposed that penalty related issues will be dealt with in a Law Administration Practice Statement (PSLA), the focus of which will be the imposition and remission of penalties in relation to Subdivision 815A and 815B. A key issue arises in terms of potential penalties where arm's length conditions differ from actual conditions including defining whether this issue arises from a bona fide difference of opinion or from the taxpayer not achieving minimum documentation requirements. Other discussion included a question being raised as to the implication for potential penalties of having a favourable Advance Pricing Agreement (APA) within the global group that did not involve the ATO. This issue is being considered further by the ATO. 
    • Reconstruction related issues will be dealt with in a separate ruling. The Institute's scoping paper dealing with potential reconstruction powers previously tabled will be used as a framework for working through reconstruction issues in upcoming meetings.

    If members have any questions on the above, they can email the Tax Group.

  • Transfer Pricing Working Group meeting on 23 May 2013

    Anthony Seve (KPMG) attended a meeting of the ATO’s Transfer Pricing Working Group (TPWG) on 23 May 2013 as the Institute’s representative. (The TPWG is a working group of the National Tax Liaison Group (NTLG) – International Subgroup).

    Key issues included:

    • The most appropriate format for communicating guidance to taxpayers in relation to the operation of the new transfer pricing law was discussed and debated. This guidance will focus on both legal interpretative matters as well as the intended ATO administrative practices.
    • In addition to formal taxation rulings and new ATO practice statements that are currently being planned by the ATO, it was agreed that an effort would be made to provide practical communication as soon as possible by way of a ‘Frequently asked questions’ publication.
    • It was resolved that a list of both interpretative and administrative issues would be complied and analysed by the TPWG.
    • Discussions focussed specifically on the critical area of transfer pricing compliance documentation. It was noted that transfer pricing documentation requirements needed to be considered from the perspective of both achieving a Reasonably Arguable Position (RAP) and achieving penalty remission.
    • Issues relating to transfer pricing documentation specifically raised and discussed included the following:
      o The need to analyse and document individual transactions when the Transaction Net Margin Method (TNMM) is applied.
      • What constituted contemporaneous documentation for the purpose of (proposed) s 284-255 of Schedule 1 to the Taxation Administration Act 1953.
      • The practical implication of analysing and documenting the arm’s length conditions for transactions.
      • Documentation requirements relating to reconstructed transactions.
      • The requirement to document the price setting process and the role of 'real bargaining'.
      • The implications of documenting non related entity transactions.
      • Separate documentation requirements of s 262A of the Income Tax Assessment Act 1936.
      • Nature of analysis and documentation required to reduce penalties to nil.
      • Potential revision of the ATO ‘4 step’ process.
      • Changes to the ATO risk assessment process relating to documentation.
      • Further it was acknowledged that a key issue arising from the recent Senate economics committee hearings that required consideration was the potential increase in compliance burden arising from the new legislation, particularly for SME taxpayers.

    If members have any questions on the above, they can email the Tax Group

  • NTLG International Sub-group - Transfer Pricing Working Group meeting on 16 April 2013

    Anthony Seve (KPMG) and Lyndon James (PwC) attended a meeting of the Transfer Pricing Working Group (TPWG) of the National Tax Liaison Group (NTLG) - International Subgroup on 16 April 2013 as the Institute's representatives.

    Matters discussed included: 

    • As well as Subdivision 815-A of the Income Tax Assessment Act 1997, the ATO advised that the scope of the TPWG will cover implementation of Subdivisions 815-B, C and D (assuming that the Tax Laws Amendment (Countering Tax Avoidance And Multinational Profit Shifting) Bill 2013 is enacted).
    • The ATO recognises that the introduction of the proposed new law will necessitate a major re-write of ATO guidance. It is estimated that 29 tax rulings, 13 practice statements and extensive web material will be impacted.
    • The ATO accordingly is intending to develop a plan to prioritise the rework of the guidance. At this stage, 'tier 1' priorities (ie first areas to have new guidance) are documentation, penalties and reconstruction powers
    • It is likely the ATO will also issue frequently asked questions for the new law similar to what it did for Subdivision 815-A.

    The next meeting will be held in approximately 6 weeks. Members can email Tax Group if they have any questions on the above.

  • NTLG International Sub-group - Transfer Pricing Working Group meeting of 21 February 2013

    Anthony Seve (KPMG) and Lyndon James (PwC) attended a meeting of the Transfer Pricing Working Group (TPWG) of the National Tax Liaison Group (NTLG) - International Subgroup on 21 February 2013 as the Institute's representatives.

    Key issues discussed included:

    • Interpretation - The policy intent is that the operation of Subdivision 815-A is totally consistent with the operation of Subdivision 815-B on all key issues including matters of reconstruction.
    • Reconstruction - Exceptions outlined in proposed Subdivision 815-B that allow the replacement of actual conditions with arm’s length conditions and in particular, the exception dealing with alignment to what independent parties would do were discussed. This will require further clarification at future meetings.
    • Documentation - The proposed new requirements were discussed, including the link between documentation and obtaining a reasonably arguable position (RAP).
    • The ATO acknowledged that significant revisions to existing taxation rulings would be required. Future TPWG meetings will focus on assisting the development of these new rulings and guidance products.
    • Areas of focus for future meetings will be (in order of priority) reconstruction, documentation, the link between adjustments and underlying transactions and the impact of reconstruction on financing transactions.

    The next meeting is to be held in April. Members can email Tax Group if they have any questions on the above.

  • NTLG International Sub-group - Transfer Pricing Working Group meeting of 29 November 2012

    Anthony Seve (KPMG) and Lyndon James (PwC) attended a meeting of the Transfer Pricing Working Group (TPWG) of the National Tax Liaison Group (NTLG) - International Subgroup on 29 November 2012 as the Institute's representatives.

    Key issues discussed included:

    • Reconstruction powers under Subdivision 815-A of the Income Tax Assessment Act 1997 - Following on from the Institute's scoping paper dealing with potential reconstruction powers (presented at the last meeting), further technical discussion was had on definitional issues (eg repricing or reconstruction). The ATO agreed that it would circulate a framework of what the guidance would look like before the next meeting. 
    • Further discussions were had on transfer pricing issues to be addressed by the TPWG - The Tax Institute is doing further work on the draft list of issues to reflect these discussions. A revised list will be considered by the TPWG out of session.

    The next meeting is expected to be in February 2013.

  • NTLG International Sub-group - Transfer Pricing Working Group - 10 October 2012

    Anthony Seve (KPMG) attended the meeting of the Transfer Pricing Working Group (TPWG) of the National Tax Liaison Group (NTLG) - International Subgroup on 10 October 2012 as the Institute's representative.
    Key issues discussed included:

    • It was agreed that the public communication of the output of the TPWG was a critical question that required ATO consideration. This would help ensure a consistent approach within the ATO, as well as a better understanding of the ATO position in relation to the operation of the new transfer pricing provisions for taxpayers.
    • Further discussion was had on the scope of the TPWG which is confined to issues directly connected with the new Subdivision 815-A provisions on treaty-equivalent cross-border transfer pricing rules. Concerns remain on whether general transfer pricing issues are being consulted on adequately under current arrangements. 
    • Reconstruction powers under Subdivision 815-A. The Institute’s scoping paper dealing with potential reconstruction powers was presented and agreed.
      • The ATO is committed to supporting the clarification and resolution of any specific issues relating to the potential application of restructure powers through the ATO private ruling and Advanced Pricing Arrangement (APA) program
      • The ATO indicated that it was currently considering updating a significant number of rulings to take into account Subdivision 815-A.
    • A list of additional transfer pricing issues to be addressed by the TPWG is being finalized by The Tax Institute and it will give additional prioritization and further detail in relation to more specific questions. A revised draft will be considered by the TPWG out of session.
    • A Frequently Asked Questions (FAQ) product to cover general issues associated with Subdivision 815-A in under development.
  • NTLG International Sub-group - Transfer Pricing Working Group on 29 August 2012

    Lyndon James (PwC) and Anthony Seve (KPMG) attended the meeting of the Transfer Pricing Working Group (TPWG) of the National Tax Liaison Group (NTLG) - International Subgroup on 22 August 2012 as the Institute's representatives.

    Key issues discussed were:

    • The purpose/objective and scope of the TPWG
      • The ATO stated that this is limited to considering the issues associated with implementing and administering new Division 815A (contained in Tax Laws Amendment (Cross-border Transfer Pricing) Bill 2012 which is awaiting Royal Assent). After debate it was agreed that the TPWG would also consider issues on administering future phase 2 (prospective rewrite of the transfer pricing rules) and phase 3 (permanent establishment attribution) legislation. However concerns remain on whether general transfer pricing issues are being consulted on adequately under current arrangements.
      • TPWG members expressed the clear view that it was important that the TPWG does not become a forum for venting on problems to the ATO but instead delivers clear guidance to taxpayers on how the ATO will administer the new law.
    • A number of issues were flagged as needing the further attention of the TPWG:
      • What can taxpayers expect from the ATO in administering Division 815A (which is to have retrospective effect to 1 July 2004)? What can the ATO do to allay concerns that there will be a change in behaviour of the ATO in the field?
      • Power to reconstruct - it was agreed that this needed immediate attention and guidance was required on how the ATO would use this new power.
      • Determinations - guidance needed on how determinations will be made under s 815-30 and how will they interact with customs valuations?
      • Approach to SMEs - can safe harbors or de minimis limits be introduced to ease the compliance burden on small taxpayers?

    If members require further information, they can email the Tax Group.

  • NTLG International Sub-group - Transfer Pricing Working Group on 29 March 2011

    Anthony Seve (KPMG) attended the NTLG - Transfer Pricing Sub-group meeting on 29 March as the Institute's representative. Matters discussed included:

    • New International Sub-group will subsume the Transfer Pricing Sub-group - The ATO advised that this meeting was the last meeting of the Sub-group in its present form. The Transfer Pricing Sub-group and the Foreign Source Income Sub-group have been rolled up into a new International Sub-group which will have a broader focus on international tax matters. The new International Sub-group would be chaired by the ATO's Deputy Chief Tax Counsel, Des Maloney
    • Practice Statement PS LA 2011/1 (Advance Pricing Arrangement (APA) Program) - The practice statement, which issued on 16 March 2011, had been generally well received and regarded as much clearer than the draft APA Guide distributed for comment in July 2010. PS LA 2011/1 replaces TR 95/23 which was withdrawn on 10 March 2011
    • International Dealings Schedule (IDS) - There has been little progress made in relation to the 2012 IDS for non-financial services taxpayers since the November 2010 meeting (the 2012 IDS for non-financial services taxpayers will replace the existing Schedule 25A for the year ended 30 June 2012). The 2012 IDS will be based on the 2011 IDS-Financial Services and will be compulsory for taxpayers with international related party dealings, however, the ATO will not be asking taxpayers to make changes to existing computer and information systems for purposes of completing the 2012 IDS. The ATO reiterated previous statements that it will be consulting widely on the draft 2012 IDS. The 2011 IDS-Financial Services will be compulsory for financial services taxpayers (excluding superannuation funds) for the year ended 30 June 2011 and will be very similar to the 2010 IDS-Financial Services. The ATO is considering whether superannuation funds should be excluded from the 2012 IDS or whether a separate IDS will be developed for them
    • OECD Update - The OECD's Working Party No.6 (Taxation of multinational enterprises) (WP6) has commenced a new project on transfer pricing issues associated with intangibles. A meeting was held with business on 21-23 March 2011 in relation to valuation issues associated with intangibles. WP6 envisages that five Issues Papers will be issued for comment during the course of the project with a discussion draft of proposed changes to the OECD's Transfer Pricing Guidelines being anticipated towards the end of 2013.

    Members requiring more information can contact the Tax Group.