Australian business to bear the cost burden of changes to transfer pricing laws

22 November 2012

Australian companies will face soaring compliance costs as a result of new proposed changes to the transfer pricing legislation released yesterday by the Assistant Treasurer Hon David Bradbury MP, according to accounting and advisory firm Grant Thornton Australia.

Grant Thornton Australia’s national transfer pricing leader, Jason Casas, says that the proposed changes to Australia’s transfer pricing rules (Stage 2) are additional to those already introduced last September and will dramatically increase the tax compliance cost burden of Australian companies that operate internationally.

“The proposed changes will hurt the very businesses that the government should be encouraging; dynamic businesses that are expanding operations internationally in the face of very difficult economic conditions,” says Mr Casas.

A key element of the proposed legislation is that businesses will need to prepare detailed documentation to support their transfer pricing arrangements or potentially face hefty fines.

In Grant Thornton’s recent survey of the experiences of companies dealing with the Australian Tax Office on transfer pricing, several CEOs and CFOs described preparing transfer pricing documentation as difficult, expensive and very time-consuming.

“Our clients’ biggest concern is the potential cost impact of the proposed documentation requirements on small and mid-sized enterprises, in particular for those companies that are suffering at the moment facing significant financial stress and tough market conditions” said Mr Casas.

Transfer pricing is a key consideration for all Australian companies as they look to expand overseas; already about a third of small-to-mid-sized businesses across Australia are affected.

“These companies should be the backbone of the government’s Asian growth strategy,” Mr Casas said.

Transfer pricing refers to the prices charged when one part of a multinational company buys or sells products or services from another part of the same group operating in a different country. The prices charged will have an impact on profit levels, and, in turn, the amount of tax to be paid by a multinational in respective countries. The rules require multinational companies to price intra-group goods and services to accurately reflect the economic contribution of their Australia operations. The Federal Government argues that transfer pricing reforms are aimed at strengthening the integrity of Australia’s corporate tax base and to prevent shifting of corporate profits overseas. 

Interested parties have been invited to comment on the exposure draft issued on the proposed changes before 20 December 2012 and Grant Thornton is concerned that the Government is not allowing sufficient time for businesses to prepare for the changes.

Mr Casas says, "Australia’s transfer pricing rules clearly need to be overhauled to bring them into line with international best practice but the Government is rushing these reforms without proper consultation with the business community. This is very complex legislation – we know that the ATO has had enormous trouble drafting this legislation – that will have an enormous impact on businesses.

"The proposed changes do not allow enough time for the business community to prepare and it creates enormous uncertainly, particularly given the fact that the ATO are applying these rules retrospectively back to 2004," said Mr Casas.

"The timing of these proposed legislative changes is ludicrous. The Inspector General is looking at these very issues: the government unnecessarily adding to business compliance costs; lack of consultation with the business community in the process; rushing to apply the changes without allowing business’s time to prepare; and then retrospectively applying the laws back to 2004" said Mr Casas. "This is a confusing and complex change and its impact will be felt across the economy."

Other features of the proposed legislation include:

  • The ATO intends the new transfer pricing rules to apply to all cross transactions, including transactions between third parties
  • Shifting transfer pricing to a self-assessment basis, placing on the company’s public officer, the responsibility of determining the company’s overall tax position arising from all cross-border dealings
  • Time limits of eight years on when the ATO can make transfer pricing adjustments
  • Significant penalties will apply to transfer pricing adjustments where the company does not maintain specific transfer pricing documentation; and
  • Specific rules allowing the ATO to reconstruct transactions and arrangements

Grant Thornton has been working closely with its Australian clients to prepare for these transfer pricing reforms. Mr Casas says. “We are working with our clients to ensure that they comply with the new transfer pricing rules in a way that is both efficient and cost effective.”

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Click here to download a PDF version of this media release.

For more information about transfer pricing changes, or to speak with Jason Casas, please contact:

Emma Cooney
National PR Manager
Grant Thornton Australia Ltd
T  +61 2 8297 2426
emma.cooney@au.gt.com

About Grant Thornton Australia Limited
Grant Thornton Australia provides audit, tax and advisory services to dynamic, growing organisations and is a single national firm operating from eight offices, with over 150 Partners, more than 1,300 people across Australia and national turnover of AUD $232 million. Grant Thornton International is the fastest growing international accounting network in the world, with a global turnover of US$3.7billion and more than 30,000 people and 2,500 partners.