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New transfer pricing documentation guidelines

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The Tax Office today issued a major ruling on transfer pricing documentation and practical issues designed to assist taxpayers to comply with the arm's length standard for international dealings. The ruling complements TR97/20 on arm's length transfer pricing methodologies in giving practical "how to' guidance on setting and reviewing transfer pricing.

"With increasing globalisation and the emerging impact of the Internet, transfer pricing continues to be a major issue,” Tax Commissioner Michael Carmody said today.

Under the arm's length standard the Commissioner may adjust the taxable income o f a taxpayer engaged in international dealings on the basis of the consideration that might reasonably be expected to have passed between independent parties dealing at arm's length with each other in relation to the supply or acquisition of property or services.

"We will continue to issue detailed position papers and allow taxpayers an opportunity to comment before making any transfer pricing adjustments.

“Taxpayers will not be penalised if they do their best to apply the principles in this ruling.

“We have been conscious of matching requirements to the risks involved. What we are looking for is for taxpayers to apply a 'reasonable business person test' as to how much they should do having regard to the importance and complexity of their transfer pricing issues. _

“This means they need to keep only the minimum documentation necessary to allow a reasonable assessment o f compliance with the arm's length standard in their circumstances. It applies a lesser documentation requirement for small businesses.

The Tax Office will conduct public seminars in Sydney and Melbourne in late July to explain the concepts contained in the rulings and their practical application to business.

In September the Tax Office will commence a Transfer Pricing Record Review and Improvement Program to gauge the level of application of the arm's length principle. The Program will include talks, booklets on Australia's transfer pricing rules and direct contact.

"The Tax Office will visit around 200 taxpayers as part of the Program during the 1998-99 year. The focus will be on the taxpayers' responses to questions in Schedule 25A on their transfer pricing methodologies and the extent of their documentation." said Mr Carmody.

"We see this as a major ongoing Program aimed at improving the level o f taxpayer understanding and compliance, and at ensuring that Australia receives its fair share o f tax.”

Tax Ruling 98/11 is available from Tax Offices or on the Tax Office's Internet site, ATOassist, at

CANBERRA 24 June 1998

Contact: Corporate Affairs and Marketing 02 6216 1901 (bh) 0411 182 433 (m)