The Exposure Draft of the Tax Laws Amendment (Cross Border Transfer Pricing) Bill 2013: Modernisation of transfer pricing rules was released on 22 November 2012. This is intended to give effect to the second stage of the Government's transfer pricing reforms announced in November 2011.
The key points in this tranche of transfer pricing reforms are:
- Division 13 will be repealed and new Subdivisions 815-B, 815-C, 815-D and 815-E will be introduced;
- the rules will be self-executing and no longer require the Commissioner to make a determination;
- unlike Division 13 (which focuses on the pricing of individual transactions), the new rules adopt a profit based approach;
- like new subdivision 815-A (the treaty equivalent transfer pricing rules), the provisions expressly allow for the use of OECD guidance materials;
- subdivision 815-B contains an express reconstruction power (allowing the Commissioner to have regard to the "economic substance" of a transaction and potentially reconstruct a hypothetical transaction);
- the provisions set out the types of transfer pricing documentation an entity may prepare - this is not mandatory, however, taxpayers who have not prepared contemporaneous documentation will not be entitled to a lower base penalty amount (ie. cannot argue that they have a "reasonably arguable position"); and
- the unlimited amendment period for transfer pricing adjustments has been reduced to 8 years.
Submissions are due 20 December 2012. We'll be releasing more detailed analysis of the reform soon.