Further ATO guidance on the application of the Simplifying Transfer Pricing Record Keeping (STPR) options

On 26 November the ATO provided further guidance on the application of the STPR options in the form of Frequently Asked Questions (FAQ). In the document the ATO emphasises on the importance of demonstrating compliance with Australia’s transfer pricing rules, even when applying the STPR options, as all taxpayers are still subject to the transfer pricing rules in Subdivision 815-B, C and D of the ITAA 1997 regardless of whether the STPR options are applied.

If a taxpayer applies the STPR options, it will still have to document that it complies with all the eligibility criteria. In the FAQ document, the ATO specifically states that self-assessment by assertion is not sufficient; the ATO expects that taxpayers keep contemporaneous documentation to self-assess the eligibility. In practice this is usually demonstrated via a simplified transfer pricing document that outlines the reasons as to why the STPR option applies to the transaction(s).

Other key points outlined in the FAQ documents are:

The STPR options apply for three consecutive income years, the first of which starts on or after 29 June 2013.

New transfer pricing documentation code (code 7) should be used at the percentage of documentation label in the International Dealings Schedule (IDS) for the 2015 and 2016 years if the STPR options are applied for a transaction disclosed in the IDS.

The profit before tax ratio for Distributors should be calculated for three consecutive years including the year for which the taxpayers are considering applying the distributors’ concession.

For the intra-group services concession, the ATO will assess, based on the specific facts, circumstances and activities of the business, whether services are strategic or significant. The core/non-core definition in TR1999/1[1] will not apply as this ruling is not relevant when applying the STPR options.

The FAQ document clarifies that taxpayers applying the intra-group services option will still have to provide evidence that the cost base is consistent with the arm’s length principle

For the low level loan concession, the combined cross-border loan balance should be calculated including loans to and from third parties as well as related parties

For assistance with the application of the STPR options, please contact Transfer Pricing Solutions on +61 (3) 5911 7001 or admin@transferpricingsolutions.com.au www.transferpricingsolutions.com.au

[1] TR 1999/1 Income tax: international transfer pricing for intra-group services.

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