Australia addresses transfer pricing treatment of Covid-19 support payments

By Leslie Prescott-Haar & Sophie Day at TP EQuilibrium | AustralAsia LP

On 15 July, the Australian Taxation Office issued a statement that provides basic guidance on the treatment of JobKeeper payments for transfer pricing purposes. Australia’s JobKeeper program provides financial support to employers that have been materially affected by the Covid-19 pandemic. The statement indicates that the Australian Taxation Office expects Australian entities to retain the benefit of the JobKeeper payment received.

The Australian Taxation Office will review transfer pricing arrangements wherein the JobKeeper payment resulted in a change to the transfer prices paid or received by the Australian entity, and it is shown to effectively shift the benefit of such financial assistance to offshore related parties. 

The statement outlines two simplistic ‘cost plus’ examples to illustrate the correct transfer pricing treatment of JobSeeker payments in the Australian Taxation Office’s view. However, the statement does not consider the more commonly applied transactional net margin method, nor any other transfer pricing method.

The statement outlines two simplistic ‘cost plus’ examples to illustrate the correct transfer pricing treatment of JobSeeker payments in the Australian Taxation Office’s view. However, the statement does not consider the more commonly applied transactional net margin method, nor any other transfer pricing method.

Presumably, the JobKeeper support should be adjusted out of a taxpayer’s financial results in the transfer pricing analyses to comply with the spirit of the statement.

But what if the comparable companies selected for the benchmarking analysis also receive the Jobseeker benefit, or foreign comparable companies are leveraged in the benchmarking analysis that obtain a Covid-19 benefit provided by another government?  Insufficient information, data lags, accounting differences, etc. will likely make appropriate adjustments to the financial results of such comparable benchmarking data difficult. 

For various reasons relating to Covid-19, accounting changes, information gaps, etc., transfer pricing analyses over the next 2 to 3 years may be more complex. Hence, taxpayers should consider and document arm’s length pricing of controlled transactions on a contemporary basis, and continue to review the positions taken as additional data may become available.

Further guidance from the OECD and/or revenue authorities would also be helpful.

— Leslie Prescott-Haar and  Sophie Day are affiliated with TP EQuilibrium | AustralAsia LP