Transfer pricing requirements and penalties

Transfer pricing documentation is not mandatory but is highly recommended to avoid penalties.

Australia has adopted a process of reviewing taxpayer risk before an audit is commenced. The review involves a scoring process to determine compliance with an ATO-recommended 4 step process. A good score protects the taxpayer against penalty if a transfer pricing audit is conducted.

If high quality transfer pricing documentation is produced then the likelihood of audit is remote. Business entities in a loss trading position for some years are at higher risk of an audit, and documentation may be considered worth the cost to protect the businesses interests.

As documentation is at taxpayer discretion, no deadlines exist. However documentation should be “contemporaneous”, meaning prepared when the annual tax return is lodged.

In the event of an audit resulting in adjustment in favour of the ATO, penalties are applied. The penalty is complex to calculate and may be up to double the adjusted tax calculated if no documentation is present – the existence of complying documentation allows for negotiation. Time interest penalties also apply but are generally not negotiable.

For more information about Grant Thornton’s transfer pricing services, contact:

Jason Casas
National Leader - Transfer Pricing
T +61 3 8663 6433
M +61 430 023 326
E jason.casas@au.gt.com

Mark Azzopardi
National Head of Tax
T +61 3 8663 6000
E mark.azzopardi@au.gt.com

Geoff Lloyd
Partner, Tax
T +61 8 3872 6666
E geoff.lloyd@au.gt.com