Advance Pricing Agreement Australia

Unlike the previous PS, which listed three different types of APA (« simplified, » « standard » and « complex ») products, the new PS does not distinguish between different types of APA products. On the contrary, the new PS specifies when the ATO will be more likely to enter an APA and when APA is more likely to be available when problems are complex and there is uncertainty as to how transfer pricing rules apply, not when the case is routine and the arm length conditions during the APP period are relatively safe or unreliable. In addition, the new PS finds that if the value of cross-border transactions is not substantial, the ATO will also be less likely to enter an APP. This change in approach appears to reflect a fundamental shift from the centre of gravity of the ATO APP program to complex, quality cases, reflected in the alleged increase in the number of bilateral and multilateral APA treatments as of June 30, 2015 compared to unilateral APAs (see Appendix 1). Following recent changes to Australian transfer pricing legislation and the creation of a new APA/MAP program management unit within the Australian Taxation Office (ATO), the ATO issued a new Statement of Practice (PS) on AAP on 24 July 2015 (PS LA 2015/4). This new PS provides ATO employees with guidance on AAP, including reciprocal expectations when the ATO is likely to take an APA or not, the process to follow, etc. It replaces the old PS LA 2011/1 practice statement and reflects, according to the ATO; (a) a principles-based approach, b) streamlining the process and procedures to improve punctuality and c) reducing administrative burden. An APA is a formal agreement between a subject and one or more tax authorities to determine and set transfer prices for transactions between the subject and its related parties. APAs usually run five years or more with the possibility of extension and going back. In accordance with current PS and international practice, an APA does not exclude a subject from a risk assessment of the company as a whole. However, outside of the annual compliance process (CAB audit), the ATO will not actively comply with APA transactions unless it has reason to believe that the taxpayer has provided false information. When an APA is placed at the centre of a risk review or control, it is limited to verifying compliance with the APA conditions to ensure that the agreed transfer pricing method has been properly applied and that the application of the APA and related documentation reflect the facts. A risk hypothesis is essential to determine the scope of the audit and identifies the risks to be addressed during the review.

In general, the risk assumption is that pricing does not reflect the performance of an arm length. The Australian Taxation Office (ATO) has published a new pre-pricing procedure (APA) (Declaration of Practice, PS LA 2015/4). The new process will apply to all ongoing negotiations regarding the APA and future APP applications (new APA and renewals).

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