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Australia Transfer Pricing Guide

Australian transfer pricing rules. The guide covers: the Division 815 of the ITAA 1997 (the "transfer pricing rules") — the Australian transfer pricing rules are contained in the "Division 815" of the "Income Tax Assessment Act 1997" (the "ITAA 1997"); the Division 815 was rewritten from 1 July 2024 to align with the "OECD Transfer Pricing Guidelines for the Multinational Enterprises and the Tax Administrations" (the "OECD TP Guidelines"); the rules apply to the "cross-border transactions" between the "associated enterprises" (the "related parties") — the "international related party dealings" (the "IRPDs"); the arm's length principle (the "ALP") — the "arm's length principle" requires that the "conditions" of the "commercial or the financial relations" between the associated enterprises are consistent with the "conditions" that would have been made between the "independent enterprises" in the "comparable circumstances"; the Australian rules adopt the "authorised OECD approach" (the "AOA") for the "attribution of the profits to the permanent establishments"; the transfer pricing methods — the "most appropriate method" must be used to determine the arm's length conditions; the methods include: (a) the "traditional transaction methods" — the "comparable uncontrolled price method" (the "CUP"), the "resale price method" (the "RPM"), the "cost plus method" (the "CPM"), (b) the "transactional profit methods" — the "transactional net margin method" (the "TNMM"), the "transactional profit split method" (the "TPSM"); the "most appropriate method" is the method that provides the "most reliable measure" of the arm's length result; the transfer pricing documentation (the "TP documentation") — the Australian taxpayers with the "international related party dealings" (the "IRPDs") must prepare the "transfer pricing documentation" (the "TP documentation"); the documentation includes: (a) the "contemporaneous documentation" (the "documentation prepared at the time of the transaction" — the "contemporaneous TP documentation") that demonstrates the "arm's length nature" of the transactions, (b) the "general documentation" (the "master file" and the "local file" — the "three-tiered documentation" approach under the OECD "BEPS Action 13"); the "thresholds" for the TP documentation: (i) the "low-value dealings" (the "de minimis threshold" — the aggregate IRPDs below $1 million for the services and $250,000 for the other dealings) may be exempt from the TP documentation, (ii) the "large taxpayers" (the turnover above $100 million) must prepare the "extensive TP documentation"; the penalties for the transfer pricing adjustments — the ATO can adjust the "transfer price" if the price does NOT reflect the arm's length value; the penalties for the transfer pricing adjustments include: (a) the "shortfall penalty" at 25% to 75% of the tax shortfall (depending on the "culpability" — the "reasonable care" vs the "recklessness" vs the "intentional disregard"), (b) the "general interest charge" (the "GIC" at 10.43% per year for the 2025-26 year); the "documentation defence" — the taxpayer can reduce the penalty if the taxpayer has the "reasonable care" and the "contemporaneous TP documentation"; the ATO compliance focus — the ATO has the "Transfer Pricing Risk Assessment" program (the "TPRA") — the ATO reviews the transfer pricing of the large multinational entities; the "ATO Tax Avoidance Taskforce" (the "TAT") focuses on the "profit shifting" by the multinationals; the "ATO Annual Compliance Arrangement" (the "ACA") is the agreement between the ATO and the taxpayer to "real-time" the compliance; the Advance Pricing Arrangement (the "APA") — the taxpayer can apply for the "Advance Pricing Arrangement" (the "APA") with the ATO to agree on the "transfer pricing methodology" for the future transactions; the APA is the "bilateral APA" (the "BAPA" — the ATO and the tax authority of the treaty partner agree on the TP methodology) or the "unilateral APA" (the "UAPA" — the ATO only). All amounts in Australian Dollars (AUD). For related reading, see our Cross-Border Tax Guide → and Corporate Tax Guide →.

TP Documentation Thresholds

  • $1M services / $250K other: The "low-value dealings" threshold exempts the aggregate IRPDs below $1 million for the services and $250,000 for the other dealings (the "de minimis threshold"). The taxpayer must still be able to demonstrate the arm's length nature of the dealings but does NOT need the "detailed TP documentation".
  • $100M turnover — extensive: The "large taxpayers" (the turnover above $100 million) must prepare the "extensive TP documentation" including the "master file", the "local file", and the "country-by-country report" (the "CbCR"). The CbCR is required for the multinational groups with the turnover above €750 million (A$1 billion).

For the APA application and the ATO compliance focus, see our Cross-Border Tax Guide →.

Transfer Pricing Methods

  • CUP: The "comparable uncontrolled price method" compares the price charged in the related party transaction with the price charged in the comparable uncontrolled transaction. The CUP is the "preferred method" when the comparable data is available.
  • TNMM: The "transactional net margin method" examines the "net profit margin" of the taxpayer from the controlled transaction. The TNMM is the "most commonly used method" in Australia. The "profit level indicator" (the "PLI") — the "net cost plus margin", the "return on the total costs", the "Berry ratio" — is used to determine the arm's length result.
  • TPSM: The "transactional profit split method" splits the "combined profit" from the controlled transaction between the associated enterprises based on the "relative contributions". The TPSM is used for the "highly integrated operations" or the "unique intangibles".

For the penalties for the transfer pricing adjustments and the documentation defence, see our Corporate Tax Guide →.