Asia-Pacific Transfer Pricing Handbook

Chapter Two

Australia’s Risk Assessment Transfer Pricing Approach

The Australian Government, through its Australian Tax Office (ATO), issued in March 2005 an international transfer pricing document entitled “A Simplified Approach to Documentation and Risk Assessment for Small to Medium Businesses.” As tax practitioners working in the field of international transfer pricing, it is our position that the ATO’s document is neither simplified nor designed for small and medium businesses. The ATO, in response to this comment, increased the small business threshold. Nevertheless, despite these shortcomings, this document provides multinational taxpayers with a worthwhile risk assessment approach toward transfer pricing issues.

The U.S. taxpayer is cautioned that the ATO transfer pricing review and audit process involves two essentially separate procedures:

1. The ATO pervasively applies the transfer pricing review process, evaluating the business and its transfer pricing activities as an intermediate audit-related step. Many companies can find themselves as being on the ATO’s watch list, but few companies face transfer pricing audits.

2. The ATO rarely audits business for transfer pricing issues, which suggests that a company facing a transfer pricing audit likely can be subject to transfer pricing adjustments and penalties.

INTRODUCTORY ISSUES

The ATO’s transfer pricing simplified approach applies to businesses with an annual turnover of less than A$100 million, which the ATO defines ...