What is transfer pricing and advance pricing arrangements in Australia?

1. If your Australian business buys goods from an overseas group company, pays it a management fee or licenses its intellectual property, the pricing can affect how much profit is taxed in each country. Waterhouse Taxation Lawyers advises businesses on Australian transfer pricing and helps them prepare and negotiate advance pricing arrangements (APAs) with the Australian Taxation Office (ATO).

What is an advance pricing arrangement?

2. An APA sets out in advance how the arm’s length conditions for specified cross-border dealings will be determined for an agreed period. In practical terms, it can establish how a business calculates a margin, fee or royalty for covered transactions. The arrangement provides certainty for those dealings while the business meets the agreed terms and conditions.
3. A unilateral APA involves the ATO and the taxpayer. In a bilateral APA, the ATO and the tax authority in an Australian treaty partner jurisdiction agree on the approach. That agreement can reduce the risk that both countries tax the same profit. A bilateral APA may be worth exploring where transactions recur year after year, the amounts are significant or the two authorities may take different views about the appropriate pricing.

Experience negotiating bilateral APAs

4. Our international tax team includes Gloria, a former ATO Director with 27 years of experience at the ATO. As an Australian Competent Authority, she negotiated bilateral APAs and handled cases under the mutual agreement procedure (MAP) with treaty partners including the United States, Switzerland, Japan, Singapore, the United Kingdom and Germany. Gloria led the ATO’s APA program for many years and led its first international tax team established for small and medium-sized businesses.
5. That experience informs how we prepare a proposal and respond to questions during negotiations. We help businesses explain what each group entity does, which risks it bears and why the proposed pricing method reflects how independent businesses would deal in comparable circumstances.

How we help businesses pursue an APA

6. We assess whether an APA is appropriate, which transactions it should cover and whether to pursue a unilateral or bilateral arrangement. We can prepare for early engagement with the ATO, develop the legal submissions and work with your economists, accountants and overseas advisers to align the supporting analysis.
7. During negotiations, we help respond to ATO questions and assess proposed terms, including the assumptions the arrangement depends on and the reporting it requires. For a bilateral APA, the tax authorities conduct the treaty negotiations. We support your business throughout that process and help you assess what the proposed terms would mean in practice.
8. We also advise on ATO transfer pricing reviews and audits. If a transfer pricing adjustment has already created a double taxation issue, we can assess whether MAP is available under the relevant tax treaty and assist with the request.

Speak with our transfer pricing team

Contact Waterhouse Taxation Lawyers to discuss your cross-border arrangements, an ATO transfer pricing review or whether an APA could give your business greater certainty.