With the recent focus on profit shifting in Australia and around the world, transfer pricing has become one of the biggest international economic issues faced by companies. An issue however, that is rarely understood beyond the CFO of most major companies. With transfer pricing currently making weekly headlines, directors and company boards have never been keener to gain an understanding of this complex issue.
The challenge has been thrown down. How do we best simplify key points around transfer pricing? We think we’ve found the answer. Pizza. (Stay with us!)
If transfer pricing was a pizza, what would be the main ingredients to consider?
Contracts – This is the dough of the business (pardon the pun). It formalises the international related party dealings with written contracts (or at least an email) to provide evidence of negotiation between parties being at arm’s length. It’s important to remember that contracts are not the same as TP documentation.
TP Policy: This is the basil. Enhancing everything around it, it will assist companies with understanding the transfer pricing position, risks and pricing between the group companies.
TP Documentation -The most regarded ingredient, the cheese. This is the best tool for taxpayers to defend and make their arguments ‘stick’ in the event of a transfer pricing audit. Documentation should be prepared before the lodgement of income tax return. Without documentation, your company doesn’t have a reasonably arguable position, which will result in no penalty reduction come tax time.
International Dealings Schedule (IDS) - This is the sauce, keeping everything together. It’s important that the IDS is completed correctly and is consistent with the transfer pricing documentation (e.g. transfer pricing methods, total amounts, etc).
Base Erosion and Profit Shifting BEPS: Like the shifting of olives, transferred from one pizza to another, the disliked olives (tax) ends up in one place, and a little discarded along the way. Companies need to keep up-to-date with recent developments from the OECD (Organization for Economic Cooperation and Development) on BEPS. Australia has only implemented the country-by-country reporting action plan and a bill has been introduced to Parliament, but expect more compliance requirements to come as a result of BEPS action plan.-
If you required assistance with your ‘transfer pricing pizza’ please contact Transfer Pricing Solutions
+61 (3) 59117001
Singapore is often a preferred location for setting up headquarters as the door to conduct business in Asia. The IRAS has released its views on how Singapore HQ's should plan and implement their transfer pricing framework. Want to know more? Read our article with our views on IRAS TP Guidelines for Singapore HQs.
The Malaysian Finance Bill 2020 incorporates transfer pricing-related changes to the current Income Tax Act, 1967 (“ITA”). The changes permit significantly greater authority to the Malaysia Inland Revenue Board (“MIRB”) and re-emphasises the importance of transfer pricing compliance, with effect from 1 January 2021.
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.