Changes to transfer pricing documentation requirements
Documentation requirements
Timing
Businesses are now required to have the transfer-pricing documentation prepared before the time the entity lodges its income tax return for the income year relevant to the matter (or matters).
Information
In addition, businesses must ensure the transfer-pricing documentation contains an arguable position of why the self-assessment position for transfer pricing outcomes contained in the tax return have been adopted.
“Businesses are now required to have their transfer pricing documentation prepared before lodging their income tax return for the relevant year.”
It is now required to set out:
- How trade is conducted within the industry of the taxpayer?
- Must come to a conclusion as to whether or not the actual arrangements between related parties are different to what arms-length parties do in the industry; and if so
- Is a transfer pricing benefit capable of being calculated
As you can see, the focus is not just on how price and/or profits compare, but also how business is conducted and how benchmarking analysis is undertaken to ensure like is compared with like.
The 5 Key Questions to answer:
Taxation Ruling TR 2014/8 sets out the five key questions for all enterprises to consider when documenting its transfer pricing treatment:
- What are the actual conditions that are relevant to the matter?
- What are the comparable circumstances relevant to identify the arms-length conditions?
- What are the particulars of the methods used to identify the arm’s length conditions?
- What are the arm’s length conditions and is/was the transfer pricing treatment appropriate?
- Have any material changes and updates been identified and updated?
The ruling states:
“The ATO recommends that an entity considers all five questions (not necessarily sequentially) in light of its own facts and circumstances, including the relative complexity and materiality of its relevant dealings and its self-assessment risk”.
The transfer pricing documentation must:
- Be prepared before income tax return lodged
- Prepared in English or readily convertible to English
- Explains the particular way in which Subdivisions 815B Income Tax Assessment Act 1997 (ITAA97) applies or does not apply to the matter
- Explains why the application of 815B to the matter in that way achieves consistency with the OECD Guidelines and other material specified by regulations
- Allow the arm’s length conditions applicable to the matter to be readily ascertained
- Allow the particulars of the method used and comparable circumstances relevant to identifying those arm’s length conditions, to be readily ascertained
- Allow (unless for the non-application of 815-B) the application of 815-B in a particular way as compared to the application of 815-B has for the operation of the penalty provisions in TAA53, to be readily ascertained
- Allow the actual conditions of the entity to be readily ascertained
If you should have any queries in regards to transfer pricing documentation, please contact Judy She and Martin van der Saag to discuss in detail.
Judy She
Senior Accountant
T: 02 9984 7774
E: judys@northadvisory.com.au
Martin van der Saag
Director
T: 02 9984 7774
E: martinv@northadvisory.com.au
“Documentation must explain why the self-assessment position for transfer pricing has been adopted and show how the arrangements compare with arm’s-length conditions.”
About the author
Marius Fourie - Director & Business Advisor
As Director and Business Advisor, Marius uses his accounting expertise and empathetic skills to work directly with business owners and help them feel at ease with their finances.
Marius saw a common need in clients that just wasn’t being met by accounting providers.
That need was for clear, open communication and streamlined accounting services that didn’t come padded out with any unnecessary features.
Business owners just don’t have time to compare different accounting firms to see which one has the best packages with the best inclusions (many of which they would pay for but never use).
Key Takeaways
Documentation must be prepared before lodgement, not afterwards.
The obligation is forward-looking — records should be ready at the time the tax return is signed and lodged.
It must clearly justify the transfer pricing position taken.
This means explaining the rationale behind the pricing outcomes and how they align with arm’s-length principles.
It should include industry and business context as well as transaction detail.
Transfer pricing documentation goes beyond numbers and must articulate the business facts and commercial rationale.
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Frequently Asked Questions
What is transfer pricing documentation and why is it important?
Transfer pricing documentation is a set of records and analyses that show how and why related-party cross-border transactions have been priced. It supports a business’s self-assessment and helps demonstrate consistency with the arm’s-length principle under tax law.
When must transfer pricing documentation be prepared?
Documentation must be prepared before the entity lodges its income tax return for the year in which the transactions occurred. This ensures the position taken in the return can be supported if reviewed.
What key issues must the documentation address?
The documentation needs to explain how trade is conducted in the taxpayer’s industry, whether actual related-party arrangements differ from what arm’s-length parties would do, and whether a transfer-pricing benefit can be calculated.
What types of analysis are typically included?
A proper transfer pricing document will set out comparable conditions, the methods used to identify arm’s-length conditions, and conclusions about whether the treatment adopted is appropriate given the business circumstances.
Why does the ATO care about documentation quality?
High-quality documentation supports the tax positions taken by a taxpayer. If documentation is absent or inadequate, a business may struggle to justify its transfer pricing position during an audit and could face penalties.
When does transfer pricing documentation need to be prepared?
Transfer pricing documentation must be prepared before the entity lodges its income tax return for the relevant income year.
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