Tax office tackles foreign prices

THE Australian Tax Office has started its second round of a four-year blitz to ensure overseas companies operating in Australia pay a fair share of tax.

The ATO is targeting the tax on transactions these companies have with their overseas affiliates.

Deloitte Touche Tohmatsu transfer pricing specialist Martin Webster said the ATO would review the transfer pricing practices of seventy companies over the next four months.

“Companies selected for review will be notified during February as part of the second round of reviews,” Mr Webster said.

“In addition to normal issues, the ATO will target royalties and management fees paid to overseas affiliates.

“The ATO is serious about completing its four-year program and has set aside the resources to do it.

“If companies thought they had escaped ATO scrutiny on transfer pricing, they had better think again.

“In particular, if abuses are found in royalty and management fee claims, the ATO will not hesitate to expand the number of companies examined.”

Mr Webster said the ATO had made it clear it would not back away from transfer pricing audits.

It is currently auditing a number of companies selected from the last round of review.

However, the ATO is also offering a ‘carrot’ in the form of an Advanced Pricing Agreement.

This is an agreement between the tax office and a company on its tax liability for transfer pricing transactions.

Mr Webster said the ATO was “really keen” on APAs.

“We’re really keen on them too. They give certainty,” Mr Webster said.

“If a company does not have an APA, the ATO can come in and rewrite its pricing.

“It remains clear, however, that the ATO’s transfer pricing blitz will touch all companies that have relatively large transactions with overseas affiliates.

“For those companies who have still not done anything to address their transfer pricing problems, the odds are closing,” he said.

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