• Step 1 – Identify your international related‑party dealings for the year (goods, services, loans, royalties, etc.).
• Step 2 – For each dealing, check whether it falls into one of the seven options (you can apply more than one option).
• Step 3 – Self‑assess eligibility: you must meet ALL criteria for that option (including exclusions).
• Step 4 – Keep simple contemporaneous evidence showing how you met the criteria (workings, contracts, ledger extracts, calculations).
• Step 5 – Disclose your election in the IDS (code 7 at the percentage of documentation label for relevant categories) or in CbC statements if applicable.
• Step 6 – Re‑check annually: thresholds, profit ratios and interest rate safe harbour ceilings/floors can change by income year.

Purpose – To reduce record‑keeping for smaller Australian economic groups with relatively simple international related‑party dealings.

Who it is for – Australian economic group annual turnover under AUD 50 million and you are not a distributor.

Eligibility criteria (you must meet all):

• Australian economic group annual turnover is under AUD 50 million.
• No sustained losses.
• No restructuring within the year.
• Royalties, license fees and/or R&D arrangements with international related parties are not more than AUD 500,000 combined (as income and/or expense).
• Specified service related‑party dealings (income and/or expense) are not more than 15% of turnover.
• You are not a distributor
• You have assessed compliance with the transfer pricing rules.

Exclusions – does not reduce documentation requirements for:

• International related-party dealings involve royalties, license fees or R&D.
• International related-party financial transactions (e.g., loans, guarantees) and associated charges.
• International related-party dealings of a capital nature.

What to keep on file:

• Turnover calculation for Australian economic group (how you measured < AUD 50m).
• List of international related‑party dealings and amounts (general ledger extract).
• Calculation showing royalties/license/R&D total ≤ AUD 500k.
• Calculation showing specified service dealings ≤ 15% of turnover.
• Short statement confirming no restructuring and no sustained losses (with supporting financials).

Practical notes:

• You can still use this option for other dealings (e.g., admin support services), but you must separately document excluded transactions such as royalties.
• If you are a distributor, you must consider the distributor option instead.

Purpose – Simplified record‑keeping for wholesale/distribution businesses with modest turnover and adequate profitability.

Who it is for – You are a distributor with Australian economic group turnover under AUD 50 million.

Eligibility criteria (you must meet all):

• You are a distributor.
• Australian economic group annual turnover is under AUD 50 million.
• Profit‑before‑tax ratio is not less than 3% (typically assessed over a 3‑year weighted average in the examples).
• No restructuring within the year.
• Royalties, license fees and/or R&D arrangements with international related parties are not more than AUD 500,000 combined.
• You have assessed compliance with the transfer pricing rules.

Exclusions – does not reduce documentation requirements for:

• International related-party dealings involve royalties, license fees or R&D.
• International related-party financial transactions (e.g., loans, guarantees) and associated charges.
• International related-party dealings of a capital nature.

What to keep on file:

• Working showing turnover < AUD 50m and that you meet the “distributor” definition used in the guideline.
• Profit‑before‑tax ratio calculation (and any 3‑year weighted average if used).
• Ledger extracts supporting the ratio and international purchases/sales.
•  Calculation showing royalties/license/R&D total ≤ AUD 500k.
•  Statement and supporting evidence that no restructuring occurred.

Practical note:

•  If profit is below 3%, you cannot rely on this option (but it does not automatically mean your pricing is wrong; it just means you need fuller documentation).

Purpose – Simplified record‑keeping for routine, supportive intra‑group services that are not core profit‑drivers (OECD‑style “low value‑adding”).

Who it is for – Groups that receive or provide low value adding intra‑group services within specified monetary/ratio limits and at a low mark‑up.

Eligibility criteria (you must meet all):

• Your LVAS dealings (services received + services provided) are either
• ≤ AUD 2 million combined (de minimis), OR
• > AUD 2 million but within the 15% tests (received ≤ 15% of total group expenses; provided ≤ 15% of total group revenue).
• LVAS expenses are not more than 25% of your pre‑intra‑group services charges profit.
• Mark‑up on relevant service costs is:
• ≤ 5% for services you receive;
• ≥ 5% for services you provide.
• No sustained losses.
• No restructuring within the year
• You have assessed compliance with the transfer pricing rules.

Exclusions:

• Only applies to services that meet the guideline’s definition of “low value adding intra‑group services”.
• Does not reduce documentation for other non‑LVAS dealings (e.g., goods, royalties, high‑value/unique services).

What to keep on file:

• Service agreements / descriptions of the services and why they are “low value adding”.
• Calculation of total LVAS received + provided and whether the AUD 2m de minimis is met.
• If > AUD 2m: workings for the 15% test (received vs total expenses; provided vs total revenue).
• Cost base schedules and mark‑up computation (≤5% or ≥5% as applicable).
• Pre‑intra‑group services charges profit computation and the 25% test.

Practical note:

• This option is commonly used for shared services such as HR, finance support, payroll processing, basic IT helpdesk and routine admin provided they are not core value drivers and do not involve valuable intangibles.

Purpose – Simplified record‑keeping for smaller cross‑border related‑party borrowings where the group uses an ATO‑specified “safe harbour” maximum interest rate.

Who it is for – Australian economic groups with modest cross‑border related‑party debt and qualifying loan terms.

Eligibility criteria (you must meet all):

• Combined cross‑border loan balance for the Australian economic group is AUD 50 million or less throughout the year.
• For each inbound related‑party interest‑bearing loan: the interest rate is no more than the ATO‑specified maximum rate for the relevant income year (the rate is updated periodically - refer here).
• Loans are denominated and funded in Australian dollars and documented in loan agreements (and related expenses are paid in AUD).
• No sustained losses.
• No restructuring within the year.
• You have assessed compliance with the transfer pricing rules.

Exclusions:

• Does not cover outbound loans (use the outbound option).
•  Does not cover other financial dealings such as guarantees and associated charges.

What to keep on file:

• Loan agreements and amendments.
• Calculation showing combined cross‑border loan balance ≤ AUD 50m at all times (e.g., monthly balance schedule).
• Interest rate schedule showing charged rate ≤ ATO maximum rate for that income year.
• Evidence funds/repayments/interest are in AUD as required (bank statements, ledger).

Practical note:

• The ATO publishes an annual safe harbour interest rate for inbound and outbound low‑level loans. You must use the rate applicable to your income year.

Purpose – Simplified record‑keeping where the total value of international related‑party dealings is small relative to group turnover (i.e., the dealings are not “material”).

Who it is for – Groups with limited international related‑party dealings compared to turnover and within a turnover cap.

Eligibility criteria (you must meet all):

• Total international related‑party dealings are less than or equal to 2.5% of total turnover for the Australian economic group.
• Australian economic group total turnover is less than AUD 100 million (additional gatekeeper test referenced in updates commentary).
• Royalties, license fees and/or R&D arrangements with international related parties are not more than AUD 500,000 combined (as income and/or expense).
• No sustained losses.
• No restructuring within the year.
• You have assessed compliance with the transfer pricing rules.

Exclusions – does not reduce documentation requirements for:

• International related-party dealings involve royalties, license fees or R&D.
• International related-party financial transactions (e.g., loans, guarantees) and associated charges.
• International related-party dealings of a capital nature.

What to keep on file:

•  Workings for total international related‑party dealings and total turnover.
• Calculation demonstrating dealings/turnover ≤ 2.5%.
• Summary list of dealings included/excluded and tie‑back to IDS labels.

Practical note:

• This option is often used by groups that have only minor cross‑border charges (e.g., small service fees) relative to their overall Australian turnover.

Purpose – Simplified record‑keeping for certain technical service dealings (engineering/architecture/industrial design type support) priced at a specified mark‑up and within a dealings cap.

Who it is for – Groups receiving or providing qualifying technical services that meet the definition and quantitative limits.

Eligibility criteria (you must meet all):

• Technical service dealings (both income and expenses) do not exceed 50% of total international related‑party dealings.
•   Mark‑up on costs for the relevant technical services is:
  • ≤ 10% for services received;
  • ≥ 10% for services provided.
• No sustained losses.
• No restructuring within the year.
• You have assessed compliance with the transfer pricing rules.
• Services fall within the guideline definition (engineering, architecture and industrial design support) and do not relate to IP/know‑how licensing, marketing/customer engagement, financial services, etc.

Exclusions:

• Does not apply to non‑technical services (e.g., general management services, marketing, finance or IT that is not part of engineering/industrial design activities).
•  Does not apply where the services involve valuable intangibles or unique expertise outside the definition.

What to keep on file:

• Service descriptions and mapping to the guideline definition of “technical services”.
• Cost base and mark‑up calculation (≤10% or ≥10% as applicable).
•  Computation showing technical services dealings are within the required cap compared to total international related‑party dealings.

Practical note:

• A common pitfall is mis‑labelling specialist advisory services (e.g., finance, legal, IT support) as “technical services”. Keep a clear description of the engineering/industrial design link.

Purpose – Simplified record‑keeping for smaller cross‑border related‑party lending where the group uses an ATO‑specified “safe harbour” minimum interest rate.

Who it is for – Australian groups with modest cross‑border related‑party receivables meeting the interest‑rate and balance tests.

Eligibility criteria (you must meet all):

• Combined cross‑border loan balance for the Australian economic group is AUD 50 million or less throughout the year.
• For each outbound related‑party interest‑bearing loan: the interest rate is no less than the ATO‑specified minimum rate for the relevant income year (refer here)
• Loans are denominated and funded in Australian dollars and documented in loan agreements (and related receipts are in AUD).
• No sustained losses.
• No restructuring within the year.
• You have assessed compliance with the transfer pricing rules.
  

Exclusions:

•  Does not cover inbound loans (use the inbound option).
• Does not cover other financial dealings such as guarantees and associated charges.

What to keep on file:

• Loan agreements, repayment terms and evidence of funding in AUD.
•  Balance schedule demonstrating combined cross‑border loan balance ≤ AUD 50m at all times.
• Interest rate schedule showing charged rate ≥ ATO minimum rate for that income year.

Practical note:

•  Interest rate thresholds are updated; keep a copy of the ATO or adviser summary showing the applicable rate for the income year

Australian Economic Group

Consists of an entity together with all the entities it is required by the Australian Accounting Standard AASB10 to include in its consolidated financial statements. An entity can be a company, partnership, superannuation fund or trust.

Sustained losses

Sustained losses occur where you have incurred losses for 3 consecutive years, including the year for which you are considering applying the option. For the purposes of these options, a loss is made when you report a negative amount on your income tax return after subtracting the sum of the total expenses labels from the sum of the total income labels.

Restructure

A significant business change such as shifting functions, assets or risks to/from overseas related parties. Such arrangements may include:

• reorganisation of your structure resulting in the disposal or acquisition of entities or the change of ownership of entities
• establishment, expansion, reduction, liquidation or relocation of business operations or business lines, resulting in the
• acquisition or disposal of assets or liabilities (tangible or intangible)
• transfer of functions or the significant modification of service arrangements between yourself and international related parties (for example, transfer of agency, distribution, finance, information technology, insurance, logistics, marketing, sales, shared services, shipping, trading, transport and treasury functions)
• transfer of risks between yourself and international related parties
•  increase or decrease of rights or obligations, and
•  a change in the nature of the business carried on through your branch operations (for example, you have commenced or ceased to use your property in, or to perform functions or services through, your branch operations).

Most options exclude taxpayers that restructured during the year.

Specified service related‑party dealings

A specified service between related parties is any service that is not a low value adding intra-group service and:

•  is not of a merely supportive nature
• contributes significantly to the creation, enhancement or maintenance of value in the multinational economic group
• requires the use of unique and valuable intangibles or leads to the creation of unique and valuable intangibles, or
• involves the assumption of control of substantial or significant risk by, or gives rise to the creation of significant risk for, the service provider.

These services include:

• services constituting the core business of the multinational group
• R&D activities (including software development unless falling within the scope of information technology services that are low value adding intra-group services)
• manufacturing and production services
• purchasing activities relating to raw materials or other materials that are used in the manufacturing or production process
• sales, marketing and distribution activities
• financial transactions
• extraction, exploration, or processing of natural resources
• insurance and reinsurance activities
• services of corporate senior management (other than management supervision of services that qualify as low value adding intra-group services).