The Australian Taxation Office (ATO) recently released draft guidance outlining its expectations of what taxpayers will need to do to satisfy the new Australian transfer pricing documentation requirements, which are now a prerequisite for establishing a reasonably arguable position (RAP) for a transfer pricing matter. To meet the new requirements, taxpayers must prepare documentation prior to lodging the Australian tax return which explains how the taxpayer has self-assessed its position under the Australian transfer pricing rules. This documentation must be consistent with the OECD Guidelines and must be available in Australia. Taxpayers who have prepared Australian documentation in the past following the ATO's previous guidance may need to review their approach as some modifications are likely to be required to satisfy the requirements of the new law, such as considering the application of the reconstruction provisions.
While documentation needs to be prepared before lodging the tax return to be eligible for a RAP, in light of the requirement to self-assess and make adjustments to increase taxable income where non-arm's length arrangements have resulted in a ""transfer pricing benefit"", taxpayers should consider performing a preliminary assessment prior to year-end. The first companies required to apply the new rules will be those with a 30 June year-end, so those companies may wish to consider their Australian transfer pricing position prior to 30 June 2014 (if they have not already done so).