Australian Transfer Pricing Ruling Welcomed

Mary Swire, Tax-News.com, Hong Kong

16 February 2011

The Australian Tax Office’s (ATO) Taxation Ruling TR 2011/1 just released, setting out its finalized transfer pricing view on business restructuring by multinational enterprises, provides a roadmap to manage risk, according to professional services firm Deloitte.

Fiona Craig, Deloitte Transfer Pricing partner, said business restructuring has been an area where many tax managers have struggled to provide a high level of assurance to their CFOs and boards around certainty of tax treatment or an assessment of risk more broadly.

“There is always a positive for taxpayers when guidance is provided in a difficult area. Certainty is a good thing,” said Craig.

“This guidance is welcomed and allows businesses to continue to implement commercial strategies, such as reorganizations in their global market, with knowledge of the framework within which the ATO will review the arrangement.

“Years of public consultation preceded the publishing of the TR 2011/1. It is hoped that several restructuring cases involving large Australian corporations will progress, now that the ATO has finally concluded its position on the issue,” added Craig.

Marc Simpson, Deloitte Transfer Pricing Account Director, said that while the release of the Ruling is welcomed, the ATO position on business restructures has similar contentious elements to other recent pronouncements on transfer pricing. These may be seen by taxpayers as a way to broaden the powers of the ATO and increase the burden on taxpayers to demonstrate their compliance with the arm’s length principle.

“The ATO will maintain a consistent view across all of its transfer pricing work until an adverse court decision forces it to do otherwise,” warned Simpson.

“The ATO has also been trying to apply anti-avoidance provisions to certain headline restructure cases, and although this final ruling is silent in this area, there is a growing sense that the ATO is fighting a losing battle on some of the outstanding cases," he added.

“For multinationals currently undergoing or considering a business restructure involving their Australian operations, the guidance is clear. Importantly, there must be a documented business case for the restructure explaining its commercial rationale, both from a group perspective and also showing how the Australian entity benefits, or at least doesn’t lose, from the restructure,” concluded Simpson.

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