Australian Government - Inspector-General of Taxation crest

Review into the ATO's management of transfer pricing

Terms of reference & submission guidelines

25 October 2012


Revenue authorities have long-held concerns that multinational enterprises may use transfer pricing to inappropriately reduce their tax liabilities by either shifting profits offshore or by shifting losses/outgoings onshore. The revenue impact of transfer pricing is perceived as one of the most important tax issues by revenue authorities. Its importance is increasing due to integration of national economies and technological progress that has allowed Small and Medium Enterprises (SMEs) to join large business in expanding internationally.661

Australia's transfer pricing regime has been primarily contained in Division 13 of the Income Tax Assessment Act 1936,662 which provides the Commissioner of Taxation with a discretion to reset the value of such prices for tax purposes.663

Submissions to the Inspector-General of Taxation (IGT), in relation to his 2012-13 work program, by larger SMEs and large business taxpayers, their advisers and representative bodies, raised concerns with aspects of the Australian Taxation Office's (ATO) management of transfer pricing matters. These stakeholder concerns could be broadly summarised as follows:

  • ATO advice and guidance — The need for clearer, more consistent ATO advice and for significant areas of uncertainty to be addressed was raised. A comprehensive review was called for in order to update, revise and consolidate, the ATO advice and guidance materials through an appropriate transparent consultation process;
  • ATO compliance approach, processes and practices (including risk reviews, audits, Advance Pricing Arrangements (APAs) and Mutual Agreement Procedures (MAPs)) — The ATO processes are claimed to be inefficient and very costly. The specific concerns include the nature and extent of the ATO's information requests, extended timeframes, lack of transparency and communication more generally; and
  • ATO's capability — The ATO officers engaged in transfer pricing matters are believed to have varied levels of capability regarding knowledge of the transfer pricing regime, economic expertise as well as industry and business knowledge. Concerns were also expressed with the ATO's organisational arrangements for dealing with transfer pricing matters in the large business segment.

Stakeholders also raised a number of concerns around international competitiveness issues given the manner in which businesses operate in a global environment with increasing cross-border flows of goods and services. These concerns have direct and indirect interaction with business decisions, including internal and external price setting in this context.

The IGT seeks to establish through this review the underlying reasons or causes for these concerns, their systemic impacts and to identify opportunities for improvement.

Terms of reference

In accordance with subsection 8(1) of the Inspector-General of Taxation Act 2003 ('IGT Act'), the IGT on his own initiative will conduct a review into the ATO's management of transfer pricing matters with a focus on:

The ATO's advice and guidance

  1. The accuracy, adequacy and timeliness of the ATO's transfer pricing advice and guidance 'products' in providing certainty to taxpayers including the community consultation processes through which they are developed.
  2. The need to update and rationalise the ATO's transfer pricing advice and guidance products to provide certainty, clarity and consistency given changes in international dealings and commerce since these products were originally issued.

The ATO's compliance approach, processes and practices

  1. The effectiveness of the ATO's compliance approach, processes and practices to appropriately deal with transfer pricing matters in a manner that minimises timeframes and compliance costs, including those relating to risk reviews, audits, APAs and MAPs.
  2. The transparency of the ATO's compliance approach, processes and practices, such as the identification of specific ATO concerns, third-party data used for comparison purposes and benchmarking, methodology for case selection and reasons for information requests.
  3. Opportunities to reduce the compliance burden, such as provision of safe harbours, and the use of targeted and staged approaches to information gathering to identify risks.

The ATO's capability

  1. The ATO's transfer pricing capability development and maintenance, such as shilling, succession planning and retention of corporate knowledge and experience.
  2. The ATO's organisational structure in dealing with transfer pricing matters, including the ATO's ability to quickly access and draw on sufficient transfer pricing and economic expertise as well as its ability to maintain consistent compliance approaches.
  3. ATO officers' industry and business knowledge, particularly in respect of the relevant transactions and their commercial context.

Other issues including international business and competitiveness interactions

  1. Broader business issues, including the cross border or global environment that interacts directly or indirectly with transfer pricing actions of revenue authorities.
  2. International experiences or comparisons with the ATO's approach and that taken by other revenue authorities.

Submission guidelines

We envisage that, broadly, your submission will be divided into two parts:

  • a detailed account of your experience with the ATO on transfer pricing matters; and
  • any opportunities to improve the ATO's management of transfer pricing matters.

Your experience in dealing with the ATO on transfer pricing matters

In the first part of your submission, it is important to provide a detailed account of specific ATO practices and behaviours that, in your view, impact upon the timely, efficient and effective resolution of transfer pricing matters. As far as possible, these practices should address the terms of reference above.

In investigating the ATO's management of transfer pricing matters, it would be useful to provide a timeline of events outlining your key interactions with the ATO including information requests, key meetings, the issuing of position papers, ATO amended assessments, APAs and dispute resolution activities, such as MAPs (if relevant).

Any adverse or detrimental impacts of the ATO's management of transfer pricing matters should then be set out and, if possible, the costs quantified. These might include unanticipated tax liabilities raised in amended assessments (including tax, penalties and interest) for prior years, increased compliance costs in dealing with the ATO during the activities or increased ongoing compliance costs thereafter and potential restructuring of significant commercial arrangements.

The IGT is also seeking examples of positive ATO practices and behaviours that contributed to the timely resolution of transfer pricing matters as well as those that minimised your costs. Relevant examples may also be drawn from your experiences in dealing with other revenue authorities.

Opportunities for improvement

In the second part of your submission, we invite you to identify opportunities to improve the ATO's management of transfer pricing matters.

These opportunities could include alternative actions, practices or behaviours which, in your view, could at the very least minimise the adverse effects of ATO practices of concern, and ideally lead to optimal outcomes for all parties.

Such alternatives may range from such specific issues as transparency and consultation relating to information requests to broad issues such as use of safe harbours to reduce overall compliance costs.

Set out below are questions to help your submission to address the broad areas covered by this review.

Questions for consideration


  • What is your experience in dealing with the ATO on transfer pricing matters?
  • What compliance costs do the ATO's transfer pricing requirements place on taxpayers? What impacts do these costs have on businesses? Are these costs and impacts different for different sized businesses? Are there significant opportunity costs that should be taken into account? Can these costs be measured?
  • Are there opportunities to reduce compliance costs and timeframes arising from the ATO's management of transfer pricing matters? If so, how could these opportunities be realised without materially affecting the ATO's ability to assess the risk to revenue?
  • Is the ATO's management of transfer pricing matters sufficiently transparent? If not, in what specific areas should transparency be improved and what effect would this have on the timely and efficient resolution of transfer pricing matters?

The ATO's advice and guidance

  • Do you consider that the ATO publishes sufficient advice and guidance to provide practical certainty on transfer pricing matters? If not, in what specific areas should more advice and guidance be provided?
  • In your view, how well does the law, OECD transfer pricing guidelines and the ATO's approach to transfer pricing fit together and are consistent?
  • Do you consider the ATO's advice and guidance products have kept pace with changes in law, business and international developments over time? If not, what are the specific changes and in what areas could this advice and guidance be updated?
  • Are the timeframes for provision of ATO advice and guidance sufficient to minimise the adverse effects of delay on taxpayers? If not, what changes could be made to ensure that such advice and guidance is provided in a more timely manner?
  • Do the avenues for community consultation enable transfer pricing matters to be appropriately considered and addressed? Please explain your views and provide examples as necessary.

The ATO's compliance approach, processes and practices

Information requests

  • Describe the type of information that you provide in income tax returns and the related International Dealings Schedules. What has been the impact of collating and reporting this information? Do you consider this level of information to be appropriate? Should less information be gathered upfront and, if so, what would be an appropriate trade-off for the associated reduction in up-front compliance costs? Should the ATO take a differentiated approach depending on the size of the taxpayer?
  • Do you believe that the ATO's information requests are well-targeted and relevant to the issues under consideration? Please provide examples.
  • Does the ATO make it clear how requested information or documents relate to the transfer pricing risks and issues? Would a greater understanding of the ATO's specific concerns assist you in the timely and efficient resolution of transfer pricing matters? If so, why would this be the case and how could this be achieved?
  • Did you specifically create information for the ATO for transfer pricing purposes — that is, information not readily available from existing business systems? What was the nature and scale of this information? Did you provide it directly or did the ATO ask for it?
  • How can the ATO reduce the compliance burden of its information needs without materially affecting its ability to assess the risk to revenue? Could the ATO take a more staged approach to information gathering? Could documentation requirements for transfer pricing matters be limited?

ATO interaction and case management

  • How did the ATO interact with you during the transfer pricing matter? Was it in a manner that promoted the timely and efficient resolution of that matter? If so, what characteristics assisted in that aim? If not, what was it about the ATO's interaction that hindered this aim and how could the ATO interact differently without materially affecting its ability to assess the risk to revenue?
  • Did the ATO's case management facilitate the timely progression of cases with minimal compliance costs? If so, what specific aspects of its case management promoted that aim? If not, what specific processes or actions hindered this aim? What alternative action could the ATO have taken? For example, you may wish to comment on the merits of a stage and gate approach.
  • Did you experience open expression of opinion from ATO audit staff and other ATO specialist staff (for example, economists)? Were points of ATO uncertainty or disagreement shared with you?
  • Was an alternative dispute resolution (ADR) process suggested or appropriate in this context?


  • How does the ATO's approach to transfer pricing consider taxpayers' setting of prices and industry benchmarks? How does the ATO resolve any inconsistencies between the two? In this respect, are there opportunities for the ATO to reduce taxpayers' compliance burdens without materially affecting the ATO's ability to assess the risks?
  • What were the valuation issues at the core of your transfer pricing dispute? What was your experience and do you consider that there are opportunities for such disputes to be resolved in a more timely and efficient manner? If so, what are these? Could this include a mutually appointed valuer or economist?


  • Have you considered entering into an APA or have you been involved in one? Did you consider the costs and benefits? Please specify these and describe how it influenced your decision to enter or not enter into an APA.
  • How long did it take to conclude an APA with the ATO? Were these timeframes sufficiently communicated to you at the outset? Do you consider these timeframes appropriate? Please provide your reasons.
  • Are there opportunities for the ATO to improve its administration of the APA program? If so, what are these and what would be the trade-offs in implementing such improvements? How would they improve both taxpayer willingness to enter APAs and the ATO's confidence in compliance with the transfer pricing requirements?

Risk reviews/audits

  • Have you been involved in a transfer pricing risk review or audit? What was the ATO's approach in assessing the transfer pricing risk? What aspects of the current transfer pricing risk review and audit processes worked well? Why did those processes work well and how did they contribute to the timely resolution of the audit or risk review? What aspects did not work well? Why and how might these be improved?
  • How did the ATO demonstrate that it has sufficiently considered your information in forming views on transfer pricing risks?
  • Do you consider there are opportunities for the ATO to more accurately assess risks before escalating to audits without increasing taxpayers' compliance costs?

Position papers

  • Have you received position papers? What period of time did the ATO allow to respond to its position papers? Do you believe that this was sufficient time and did you seek an extension?
  • Do you believe that the ATO adequately considered your responses to its position papers? Please explain your views.


  • Do you consider that MAPs appropriately minimise the potential for double taxation with respect to Australia's treaty partners? If not, why?
  • Have you been involved in a MAP? What were the timeframes involved? What were the impacts on your business?
  • Please outline any alternative approaches that you believe would result in improvements. Do you consider that there are any overseas practices that the ATO could adopt to further reduce MAP timeframes? If so, what are these practices?

The ATO's capability

  • Do you consider the ATO has sufficient overall 'collective capability' to efficiently resolve transfer pricing matters? If so, what specific skills, experience and organisational response leads you to this conclusion? If not, what are the specific areas for improvement?
  • How might the ATO maintain and disseminate its transfer pricing expertise?
  • Are the roles and responsibilities of the different areas within the ATO sufficiently clear to enable consistent, timely and efficient resolution of transfer pricing matters?
  • Are there any particular organisational arrangements that contribute to the efficient resolution of transfer pricing matters? What are these arrangements and how do they assist?

Alternative models

  • Is there potential to remove lower risk taxpayers from the ATO's transfer pricing requirements? For example, through the provision of safe harbours, de minimis thresholds and carve-outs for smaller taxpayers?


  • Are there any other areas on which you would like to make submissions?
    For example, you may wish to cite international experiences or comparisons which you believe would lead to improvements.


The closing date for submissions is 23 November 2012. Submissions can be sent by:

Post to:

Inspector-General of Taxation
GPO Box 551

Email to: [for enquiries regarding this review, please email]


Submissions provided to the IGT are in strict confidence (unless you specify otherwise). This means that the identity of the taxpayer, the identity of the adviser and any information contained in such submissions will not be made available to any other person, including the ATO. Sections 23, 26 and 37 of the IGT Act 2003 safeguard the confidentiality and secrecy of such information provided to the IGT — for example, the IGT cannot disclose the information as a result of an FOI request, or as a result of a court order generally. Furthermore, if such information is the subject of client legal privilege (or legal professional privilege), disclosing that information to the IGT will not result in a waiver of that privilege.

661 Giammarco Cottani, IBFD: Transfer Pricing (2011) pp 10, 12, 15-18; Thomson Reuters, Australia and New Zealand Tax Survey (2012).

662 Subdivision 815-A of the Income Tax Assessment Act 1997 was recently enacted to confirm that the internationally consistent transfer pricing rules contained in Australia's tax treaties and incorporated into Australia's domestic law provide assessment authority to address treaty related transfer pricing: Explanatory Memorandum, House of Representatives, Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) 2012, p 3.

663 Section 136AD of the Income Tax Assessment Act 1936 provides discretion to deem the consideration for supply or acquisition of property under an international agreement to be equal to the arm's length consideration in respect of that supply or acquisition where the Commissioner is satisfied that the parties to the agreement are not dealing at arm's length in relation to the supply or acquisition and either the consideration received for the supply was less than the arm's length consideration, or the consideration given for acquisition was in excess.