Exposure Draft legislation to introduce the revised Organisation for Economic Co-Operation (OECD) standards for transfer pricing documentation and Country-by-Country reporting has been released, having potential implications for multinational enterprises with annual global revenue above the $1 billion threshold.

Background

Multinational tax avoidance is a topical issue globally, with the OECD at the forefront of efforts to counter international tax avoidance and evasion.

In 2013, the OECD and G20 Countries adopted the Action Plan on Base Erosion and Profit Shifting (the BEPS Action Plan), a fifteen-point plan designed to ensure that profits are taxed where activities that generate profits are performed.

Action 13 recognises that enhanced transparency for tax administrations, by providing them with adequate information to conduct transfer pricing risk assessments, is an essential part of tackling profit shifting.  It outlines a standardised, three-tiered approach to transfer pricing documentation.

Proposed changes

The recently released exposure draft legislation intends to implement Action 13 of the BEPS Action Plan into Australian law.

Under the proposed legislation, Australian residents or foreign residents with an Australian permanent establishment that have annual global revenue of $1 billion  or more will be required to provide a statement to the Commissioner.  This is intended to apply to both Australian headquartered multinational enterprises and Australian subsidiaries of multinational enterprises headquartered outside of Australia.

The statement may be required to include one or more of the following:

  • a Country-by-Country report, requiring high-level information relating to the global allocation of a multinational group’s income and taxes paid, as well as information about the location and main business of each constituent entity within the group;
  • a master file, requiring an overview of the multinational group’s business operations; and
  • a local file, focusing on specific transactions between the reporting entity and their associated enterprises in other countries.

The statement is intended to provide the Commissioner with relevant and reliable information to carry out a transfer pricing risk assessment.

The amendments are proposed to apply in