The Australian Taxation Office (ATO) on February 26 released guidance on procedures that must be followed before ATO personnel can advance the view that a transaction must be reconstructed for transfer pricing purposes under one of the exceptions provided in ITAA 1997s 815-130(2) to (4).
Under controversial exceptions to the general transfer pricing rules, adopted in 2013, a transaction can be reconstructed for purposes of identifying arm’s length conditions when the form of the actual commercial or financial relations is inconsistent with the substance of those relations; when independent entities would have entered into other commercial or financial relations which differ in substance from the actual commercial or financial relations; or when independent entities would not have entered into commercial or financial relations.
According to new practice statement law administration PS LA 2015/3, though, these new powers will only be exercised after fulfilling several levels of review within the ATO. The guidance states that ATO personnel must obtain approval from a relevant Assistant Commissioner within their business line prior to adopting the view that one of the exceptions should apply to an entity’s actual commercial or financial relations. Prior to obtaining that approval, ATO personnel must fulfill requirements such as consulting with government experts and giving the taxpayer the opportunity to clarify the facts, the guidance states.
The practice statement does not apply in instances where ATO personnel are merely re-pricing an entity’s actual conditions in accordance with the ‘basic rule’ in subsection 815-130(1).
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