Australia - ATO continues its focus on transfer pricing outlined in its 2011/12 compliance program

Tax Insights ()

The Australian Taxation Office (ATO) has released its Compliance Program for 2011/12. The program sets out the tax compliance risks of most concern to the ATO and the ATO’s strategies identified to address these risks.

As with prior years, the ATO has again highlighted transfer pricing as a key compliance risk over the next 12 months.

Key transfer pricing aspects of the compliance program

Summarised below are the key aspects of the ATO’s 2011/12 Compliance Program which are relevant to transfer pricing:

  1. There will be a continued focus on international profit shifting in the small-to-medium (SME) segment (annual turnover of $2m to $250m) and the large business segment (turnover above $250m) with a number of transfer pricing risk reviews and audits planned for 2011/12.
  2. The ATO will continue to exchange information with overseas tax authorities to target awareness-raising campaigns and select higher risk cases for review.
  3. The ATO plans to formally review the corporate governance frameworks of large business under its Risk Differentiation Framework which applies a comparative assessment of tax risk.
  4. A specific focus on particular arrangements designed to avoid withholding tax, including transfers of intellectual property offshore by Australian multinationals.
  5. Continued focus in relation to business restructures and companies with low profitability.
  6. With increased losses incurred as a result of the global financial crisis, there is an increased focus on the quality of carry forward tax losses including whether losses arise from arrangements which do not reflect genuine commercial arrangements or lack economic substance.