With conflicting requirements, Year End Financial Statement auditors are in many cases declining to sign off on audits where there is no ‘evidence’, a company has satisfied the new transfer pricing requirements. The quandary for many companies is how to achieve this when transfer pricing documentation is not required to be prepared until approximately 6 months after year end, whilst the auditors come in 2 months after year end.
There have been various cases where auditors of the financial statements are requesting for more detailed explanations on a companies’ transfer pricing position, before agreeing to sign off the financial accounts. In some cases, the auditors have specifically requested to sight ‘evidence’ (i.e. presumably transfer pricing documentation) for the income year in order to understand how the company is managing transfer pricing.
This change has put pressure on companies, who traditionally prepare their transfer pricing documentation months later, after the end of the financial year and before the lodgement of the income tax return.
Working with our clients, we have developed an approach which provides the auditors with a clear outline, including consideration of the legislation summary of their transfer pricing position, while avoiding the unnecessary preparation of detailed transfer pricing documentation and duplicating what needs to be performed at a later date. Auditors have accepted this document and have agreed to sign the financial statements without further delays.
Many clients have found added benefits, using this tool as the basis for preparing the company’s transfer pricing policy. Given the current focus from the government on transfer pricing, it has also become a useful device for finance teams to explain their company’s transfer pricing position to the board and/or key managers of the business.
If your company is facing this issue with the end of the year audit and requires assistance, please contact Transfer Pricing Solutions on 03 5911 7001 or email firstname.lastname@example.org.
Thec Covid-19 pandemic has triggered the most severe recession and is causing enormous damage to the world economy. The economic downturn will impact a group’s transfer prices, analysis and documentation, more so with the BEPS Action Plans in place and the high level of transfer pricing scrutiny across the globe.
JobKeeper forms part of taxable income in the tax return. Makes sense, it is a subsidy against wages, so I am sure there are no surprises there, but how do you assess the arm’s length financial outcomes of the entity for transfer pricing purposes?
The ATO expect that Australian entities will retain the benefit of the JobKeeper payment they receive. So how do you treat the JobKeeper payments for transfer pricing purposes?