Tax Compliance to Be More Complex As Government Rushes New Transfer Pricing Laws
Australian companies face soaring compliance costs under the second stage of proposed transfer pricing draft legislation due out this month, according to accounting and advisory firm Grant Thornton Australia.
Grant Thornton Australia’s national transfer pricing leader, Jason Casas, says anticipated changes to Australia’s transfer pricing rules will have a dramatic effect on companies.
A key element expected to feature in the draft legislation is documentation to support a business’s transfer pricing arrangements will become mandatory. “Preparing transfer pricing documentation can be a difficult and very time-consuming task. Companies will need to spend tens of thousands of dollars and hundreds of man-hours preparing transfer pricing documentation,” said Mr Casas.
“These new laws, at a time when many companies outside the mining sector are struggling to turn a profit, are a slap in the face for business.” Mr Casas continued, “We are not just talking about big business. The impact of these latest reforms will be felt hardest by small and mid-sized enterprises, who do not have the substantial in-house resources of large multinational companies. Transfer pricing is a key consideration for all Australian companies as they look to expand overseas; already about a third of small-to-mid-sized businesses across Australia are affected.”
Transfer pricing refers to the prices charged when one part of a multinational company buys or sells products or services from another part of the same group operating in a different country. The prices charged will have an impact on profit levels, and, in turn, the amount of tax to be paid by a multinational in respective countries.
The rules require multinational companies to price intra-group goods and services to accurately reflect the economic contribution of their Australia operations. The Federal Government argues that transfer pricing reforms are aimed at strengthening the integrity of Australia’s corporate tax base and to prevent shifting of corporate profits overseas.
Grant Thornton’s primary concern with these reforms is that the business community is not being properly consulted.
Mr Casas says, “Australia’s transfer pricing rules clearly needed an overhaul to bring them into line with international best practice but the Government is rushing both stages of the reforms without proper consultation with the business community. The next stage of the proposed transfer pricing legislation has not even been released to the public for consideration and the Government is already talking about introducing it into Parliament this year. This is very complex legislation that will potentially have an enormous impact for businesses.
“Most importantly, it does not give business enough time to prepare.
“We are concerned that Australia’s dynamic business community, who are expanding operations internationally and need Australian rules to be consistent with international standards to remain competitive. These businesses may not have the cash flow or compliance support to prepare documentation under the proposed legislation. There is a real worry that these additional costs of compliance may discourage international expansion,” says Mr Casas.
Grant Thornton has been working closely with its Australian clients to prepare for these transfer pricing changes. “We are working with our clients now to gauge the potential impact of these changes on their businesses,” Mr Casas says. “At Grant Thornton, we work with our clients to ensure they comply with the transfer pricing rules in a way that is both cost effective and efficient. This will be a very significant change and many companies are not aware of the considerable impact that it will have.”