Appendix 9: Percentage of dealings with documentation

Percentage of dealings with documentation

Percentage of dealings with documentation refers to the aggregate dollar amount of transactions reported at specific questions in the schedule for which you have relevant documentation expressed as a percentage of total dollar value of transactions reported at each specific question.

If your relevant related party dealings meet the conditions for one of the simplified record keeping options in PCG 2017/2, use code 7 for the dealings for which you decide to apply the simplified record-keeping option. The simplified record-keeping options available are:

• materiality – applicable revenue related dealings
• small taxpayers – applicable revenue related dealings
• distributors – applicable revenue related dealings
• low-value-adding intra-group services – applicable services related party dealings
• technical services – applicable technical services related party dealings
• low-level inbound loans – applicable inbound international related-party interest-bearing loans and associated expenses
• low-level outbound loans – applicable outbound international related-party interest-bearing loans and associated expenses.

Transfer pricing documentation

For income years commencing on or after 29 June 2013, section 284-250 of Schedule 1 to the Taxation Administration Act 1953 provides that a particular way of applying Subdivision 815-B of the ITAA 1997 is not reasonably arguable for the purpose of applying Division 284 of Schedule 1 to the Taxation Administration Act 1953 (concerning administrative penalties) unless the entity meets the documentation requirements in section 284-255.

In order for the documentation requirements in section 284-255 to be met, certain factual matters set out in subsection 284-255(2) must be readily ascertained from records that meet the requirements of subsection 284-255(1).

Taxation Ruling TR 2014/8 sets out our views on the document requirements in section 284-255.

It is recommended at paragraphs 80 to 121 of TR 2014/8 that the following 5 key questions be considered when documenting your transfer pricing treatment in light of your facts and circumstances:

1. What are the actual conditions that are relevant to the matter?
2. What are the comparable circumstances relevant to identifying the arm's length conditions?
3. What are the particulars of the methods used to identify the arm's length conditions?
4. What are the arm's length conditions and is the transfer pricing treatment appropriate?
5. Have any material changes and updates been identified and documented?

If you meet the documentation requirements of Subdivision 284-E you may lessen the likelihood of the ATO conducting a transfer pricing review.

The selection of arm's length pricing methods for your related-party international dealings is discussed in TR 98/11.

Contemporaneous documentation

Documentation is contemporaneous if:

• it is existing or brought into existence either
  • at the time you are developing or implementing any arrangement that might raise transfer pricing issues
  • when you are reviewing these arrangements prior to or at the time of the preparation of tax returns
• the documentation records information relevant to determining the arm’s length conditions for the purpose of applying Division 815 of the ITAA 1997.

The documentation may be in the form of books, records, studies, budgets, plans and projections, analyses, conclusions and other material that record the information. It may be in electronic or written form.

The initial analysis of your international dealings for the purpose of determining the arm's length conditions for those dealings will have been carried out and documented at the time of engaging in the dealings. To review those international dealings before you prepare your tax returns is prudent business practice.

To determine the code for the percentage of your dealings with international related parties

At questions 5 to 13 and 17 – label F, write the relevant code from the table below for either:

• the percentage of your dealings with international related parties for which you have the relevant written documentation; it is not a requirement for the purposes of selecting the code that relevant written documentation meets all the requirements of Subdivision 284-E of Schedule 1 to the Taxation Administration Act 1953
• code 7 for your dealings shown at questions 5, 7, 8 or 11c for which you applied one of the simplified record-keeping options in PCG 2017/2.

If, after exercising commercial judgement, you have decided to aggregate and test multiple international related party dealings through the application of the transactional net margin method on a whole-of-entity basis, then do both of the following:

• print code 12 at label E to show transactional net margin method on a whole-of-entity as the main pricing methodology.
• print the applicable code from the table below at label F to indicate the percentage of dealings with documentation for questions 5 to 13, and 17.

If, in exercising your commercial judgement you decide not to apply a whole of entity transactional net margin method analysis, you should test and document your international related party dealings separately and use one of the codes from the table below to show the percentage of the total of the dollar value for which you have documentation.

Table: Percentage of total dollar value

Code	Percentage
1	0%
2	1% to less than 25%
3	25% to less than 50%
4	50% to less than 75%
5	75% to less than 100%
6	100%
7	Applied simplified record keeping option in PCG 2017/2

You may calculate the percentage on the basis of a reasonable estimate.

A statistical sample may be an appropriate method of calculating the relevant percentage, provided the sample selection and mathematical consideration are consistent with generally accepted statistical methods.

Keep your working papers if you have used a sampling process to make this estimate.

Continue to: Appendix 10: Capital asset pricing methodologies

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