All you need to know about Australia’s Simplified Transfer Pricing Record Keeping
With the increasing scrutiny from the ATO in transfer pricing matters over the recent years, the burden and cost of compliance are taking its toll on taxpayers, particularly, the small to medium businesses. Documentation requirements of Subdivision 284-E can impose an administrative burden on taxpayers, disproportionate to their risk of not complying with the transfer pricing rules. Considering the challenges faced by taxpayers, the ATO developed Simplified Transfer Pricing Record Keeping (“STPR”) options in 2014 to allow certain taxpayers which meet the criteria to minimise their record keeping cost.
The following four STPR options were introduced in 2014:
- Small taxpayers
- Intra-group services
- Low-level inbound loans
The four options above are applicable from 1 July 2013. Along with the STPR options, the ATO, on 17 December 2014, released the Practice Statement Law Administration 2014/3 (“PSLA 2014/3”) to provide guidance to ATO’s officers on the application of the STPR.
Over the years, the ATO added four new options applicable from 1 July 2015. These options are:
- Management and administration services
- Technical services
- Low-level outbound loans (recently added on PCG 2017/2)
Applying the STPR options equals no documentation, true or false?
On 22 February 2017, the ATO issued the Practical Compliance Guideline (“PCG 2017/2”) to provide guidance on the practical application and procedures of the STPR options available to date (outlined above).
The PCG 2017/2 states that where taxpayers choose to use a STPR option, they need to inform the ATO in their International Dealings Schedule (IDS) as part of the Income Tax Return. If a taxpayer discloses in the IDS that is using the STPR options, the Company needs to assess and document how it satisfies ALL the eligibility criteria.
The ATO is not expecting to allocate significant resources to review cross-border transactions or arrangement where taxpayers selected a STPR option in the IDS. This means that, to some extent, taxpayers with transactions eligible for STPR options are in a low-risk category.
However, from a compliance perspective, the ATO expects taxpayers to keep contemporaneous documentation to show how the taxpayer is eligible to the STPR option. This is particularly important given that the eligibility criteria are strict and there are a number of conditions that should be met by the taxpayers to be eligible.
Our firm has extensive experience in assisting taxpayers with the application of the STPR options. We can assist with the assessment of eligibility of your business in applying the STPR options, preparation and review of the International Dealings Schedule and drafting of contemporaneous documentation required as by the PCG 2017/2.
Contact Transfer Pricing Solutions
+61 (3) 59117001