One of the most challenging aspects of discussing Australia’s transfer pricing provisions with people involved in the transfer pricing process is that, at some point in the discussion, they no longer believe the information they are being provided. They don’t believe that for tax purposes the ATO can set aside contractual arrangements and replace them with their own assessment, they don’t believe that even though their transfer pricing might be accepted in the parent company’s jurisdiction, it may not be accepted by the ATO and they don’t believe there is any reason to reassess their current transfer pricing strategies around intellectual property and intangibles, despite the fact that recently released OECD guidance material has specifically questioned the continued use of previously accepted transfer pricing methodologies as they relate to IP and intangibles.
Unfortunately, in all the transfer pricing reviews Glasshouse Advisory has been involved in (either via the provision of an opinion to a client or a second opinion to a tax authority), existing transfer pricing strategies and documentation around the development and use of IP and intangibles do not comply with Australia’s new transfer pricing legislation, nor do they comply with the OECD’s recently released guidance material on transfer pricing and intangibles.
In this second instalment of our education series on transfer pricing issues associated with intellectual property and intangibles, we provide context to why there is so much confusion in this area, by providing:
Despite the fact that Australia’s revised transfer pricing legislation has been in effect for at least 4 years, the ATO has acknowledged that there is a high degree of non-compliance when it comes to dealings between multinational groups involving intellectual property and intangibles. By providing the context behind the reason for the recent changes to Australia’s transfer pricing legislation, this information should allow multinational groups to evaluate if their current IP and intangible transfer policies are in accordance with the revised legislative requirements or whether there is a need to review this specific class of dealings in order to reduce the risk of non-compliance.