Australia updates transfer pricing legislative reference to OECD guidance

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

On 29 July, the Australia Taxation Office confirmed that Australia’s transfer pricing rules should be interpreted consistently with the 2017 OECD transfer pricing guidelines, which incorporate changes made in relation to the OECD/G20 base erosion profit shifting (BEPS) final reports.

The tax office statement aims to reflect recent amendments to Australia’s transfer pricing legislation in Section 815-135 of the Income Tax Assessment Act 1997. Section 815-135, as originally enacted, provided that Subdivision 815-B must be construed in a manner that best ensures consistency with the 2010 OECD transfer pricing guidelines.

Given the statutory reference to specifically dated OECD guidelines, there is an obvious necessity for periodic amendment of such legislation. As such, in 2017, Section 815-135 was amended to also include a reference to the OECD’s 2015 final BEPS Actions 8–10, Aligning Transfer Pricing Outcomes with Value Creation. 

The reference to the OECD guidelines in subsection 815-135(2) of the Income Tax Assessment Act 1997 was updated from the 2010 edition to the 2017 edition, through The Treasury Laws Amendment (2019 Measures No. 3) Act 2020, which received royal assent on 22 February 2020. This amendment applies retrospectively for income years starting on or after 1 July 2017.

The 2017 OECD transfer pricing guidelines include revisions made through Aligning Transfer Pricing with Value Creation, Actions 8-10 Final Reports of the OECD BEPS, and revisions to Chapter IX of the guidelines concerning business restructurings.

The 2017 OECD transfer pricing guidelines do not yet incorporate more recent OECD guidance regarding hard-to-value intangibles dated June 2018; revised transactional profit split application guidance dated June 2018; and financial transactions dated February 2020. However, presumably, the Australian Taxation Office does have reference to such subsequently issued OECD guidelines, as well. In this regard, for example, that the OECD’s Australia country profile updated February 2018 indicates as follows:

“Australia’s domestic legislation does not specifically provide for transfer pricing rules or special measures regarding hard to value intangibles. However, as Australia’s transfer pricing legislation incorporates the [OECD transfer pricing guidelines (TPG)] through section 815-135 ITAA 1997, guidance contained in the TPG relating to hard to value intangibles would be relevant.”

Hence, while the drafting of the Australian transfer pricing legislation in this manner was deliberate, as a result, Australia will likely be in continuous “catch-up” mode in terms of its statutory reference to OECD transfer pricing guidelines.

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