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The Australian Tax Office has issued guidance on to what extent multinationals should comply with the transfer pricing documentation requirement, as part of providing a local file, that requires the disclosure of International Related Party (IRP) agreements.
Action 13 of the OECD's BEPS project contained a recommendation for a three-tiered standardized approach to transfer pricing documentation. It consists of: a master file, containing standardized information relevant for all members of a multinational group; a local file, referring specifically to material transactions of the local taxpayer; and a CbC Report containing information relating to the global allocation of the group's income and taxes paid, and indicators of the location of economic activity within the group.
The guidance specifically relates to the local file. Under Part B of the local file, copies of IRP agreements generally need to be provided, to supplement information on the value of related party transactions in Part A.
The guidance sets out the circumstances under which less documentation will be required in Part B. The ATO explained that it has tried to achieve the right balance in this approach between being able to identify whether transactions have been undertaken at arm's length and reducing the compliance burden for multinationals seeking to comply with the CbC reporting rules.
The ATO explained: "A key design feature of the local file is the requirement to show values in Part A and provide agreements in Part B for individual transactions unless the transaction is covered by one of the eight categories on the Exclusions List. This transaction level reporting design feature is expected to significantly improve the ATO's ability to undertake high level risk assessment of profit shifting through related party transactions."
As well as setting out exclusions, the guidance outlines the general principles multinationals should follow in providing documentation on IRP agreements.
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