The Tax Institute's annual National Transfer Pricing Conference took place last month. Acting Assistant Commissioner Bill Neskovski represented the ATO to discuss supply chain disruption and why transfer pricing matters.
A key focus for the panel discussion was the speed at which businesses change in response to these disruptions and the flow-on impact to transfer pricing.
Some of the ATO's concerns regarding these rapid changes relate to how the functions, assets and risk profile of the Australian entity are affected and how they are appropriately accounted for.
We're also interested in how Australian entities have been compensated and the commercial rationale and substance of the change.
Mr Neskovski shared insights into what taxpayers, and their advisers, should be aware of when considering the transfer pricing implications of business changes, including
- the economic impacts on Australian operations
- the contractual arrangements between related parties and any obligations or material terms and conditions that have been varied, amended, or terminated
- the impact on the product and service offerings of the Australian entity
- changes in business strategies.
'Taxpayers and their advisers should think about documenting these changes as they are considered and implemented to ensure that such changes are supportable and the commercial and economic rationale are captured contemporaneously.'
Mr Neskovski addressed factors the ATO takes into account when considering this fast pace of change.
'When considering the impacts of transfer pricing for Australian entities, we will always seek to understand the commercial background to transactions we're reviewing, as well as the tax and financial outcomes you would have achieved if not for the changes.'
For more information, including how to simplify transfer pricing record-keeping, visit: International transfer pricing – concepts and risk assessment