Transfer Pricing

Transfer Pricing Services in Australia

INP Group provides specialist transfer pricing advisory, documentation, and compliance services for multinational enterprises and foreign-owned entities operating in Australia. Our bilingual team — fluent in English and Mandarin — assists Chinese-owned subsidiaries, listed company groups, and state-owned enterprises to meet their obligations under Subdivision 815-B of the Income Tax Assessment Act 1997 (ITAA 1997) and the OECD Transfer Pricing Guidelines, while managing audit risk and structuring intercompany arrangements efficiently.

What Is Transfer Pricing?

Transfer pricing refers to the prices charged for goods, services, loans, and intellectual property (IP) transferred between related parties within a multinational group — for example, between an Australian subsidiary and its Chinese parent company. When related parties transact with each other, there is a risk that prices may be set artificially to shift profits to lower-tax jurisdictions.

Australian law requires that all cross-border related-party transactions be priced on arm’s length terms — that is, at the same price that independent parties would agree to in comparable circumstances. This obligation applies regardless of whether the parties are in a tax treaty country. The Australian Taxation Office (ATO) actively scrutinises transfer pricing arrangements and has the power to re-determine pricing and issue amended assessments where the arm’s length standard is not met.

Australian Transfer Pricing Legislation — Key Reference Points

INP Group’s transfer pricing specialists work with the following legislative and regulatory framework on a daily basis:

Legislation / Guidance	What It Covers
Subdivision 815-B, ITAA 1997	Core arm’s length obligation for cross-border related-party transactions
Taxation Ruling TR 2014/8	Identifies when Australian entities must prepare transfer pricing documentation
PCG 2017/2	ATO’s simplified documentation approach for low-risk entities (AUD 2 million threshold)
Taxation Laws Amendment (Country-by-Country Reporting) Act 2015	Requires CbC Reports for Significant Global Entities (SGEs) with AUD 1 billion+ global revenue
International Dealings Schedule (IDS)	Annual disclosure of related-party transactions exceeding AUD 2 million
OECD Guidelines (2022)	Global standard for arm’s length pricing, transfer pricing methods, and documentation
Division 832, ITAA 1997 (Pillar Two / GloBE)	15% global minimum tax for MNE groups with EUR 750 million+ consolidated revenue (from FY 2024)

Who Must Comply? ATO Thresholds Explained

Transfer pricing obligations in Australia are not limited to large corporations. The following thresholds determine your documentation and disclosure requirements:

- AUD 2 million threshold: Any Australian entity with aggregate related-party dealings exceeding AUD 2 million in a year must disclose these in the International Dealings Schedule (IDS) attached to its income tax return.
- Simplified documentation (PCG 2017/2): Entities with cross-border related-party dealings between AUD 2 million and AUD 25 million may qualify for the ATO’s simplified record-keeping concessions, provided the transactions fall within approved categories and risk ratings.
- Full documentation obligation: Entities with higher-risk transactions, dealings above AUD 25 million, or transactions in sensitive categories (e.g. loans, IP, management services) are expected to prepare contemporaneous transfer pricing documentation — a Local File at minimum.
- Significant Global Entity (SGE) — AUD 1 billion threshold: Australian entities that are part of a multinational group with annual global revenue of AUD 1 billion or more are classified as SGEs and face additional obligations including Master File and Country-by-Country Report (CbCR) preparation.
- Pillar Two applicability: MNE groups with consolidated annual revenue exceeding EUR 750 million (approximately AUD 1.2 billion) are subject to the OECD Pillar Two global minimum tax rules, enacted in Australia as Division 832 of the ITAA 1997, with effect from income years beginning on or after 1 January 2024.

Not sure which tier applies to your group? INP Group provides a complimentary 30-minute threshold assessment for new clients. Contact us at admin@inpgroup.com.au or call 1300 168 368.

The Three Pillars of Transfer Pricing Documentation

Australia’s transfer pricing documentation framework follows the OECD three-tier structure. INP Group prepares all three document types.

1. Local File

The Local File is the most important document for most Australian entities. It provides a detailed analysis of the Australian entity’s controlled transactions, demonstrating that they are priced on arm’s length terms. A well-prepared Local File should include:

- Organisational structure and background of the Australian entity and its related parties
- Description and financial analysis of each controlled transaction (goods, services, loans, royalties, management fees)
- Functional analysis — functions performed, assets used, and risks assumed by each party
- Selection and application of the most appropriate transfer pricing method (CUP, TNMM, RPM, CPM, or PSM)
- Economic benchmarking analysis using appropriate comparable companies or transactions
- Conclusion on arm’s length compliance, with supporting financial data

Under TR 2014/8, the Local File must be prepared before the due date of the income tax return (or amended return) and must exist contemporaneously — that is, at the time of lodgement, not after an ATO query is received.

2. Master File

The Master File provides a high-level overview of the entire multinational group. It is required for SGEs (AUD 1 billion+ global revenue groups). It covers:

- Global organisational structure, including legal entities and ownership percentages
- Group-wide business description, including key value drivers and supply chain
- Overview of the group’s intangible assets and IP ownership
- Intercompany financial activities, including group financing policies
- Group transfer pricing policies and the financial and tax positions of the group

3. Country-by-Country Report (CbCR)

CbC Reporting is required for SGEs that are the head entity of a CbC reporting group. The report discloses, for each tax jurisdiction in which the group operates: revenue, profit before tax, income tax paid, employees, and stated capital. The ATO shares CbC Reports with tax authorities in other jurisdictions under automatic exchange of information agreements. In Australia, CbC Reports are due 12 months after the end of the reporting period and are lodged electronically through the ATO’s Business Portal.

Transfer Pricing Methods Recognised by the ATO

Australia follows the OECD framework, which recognises five transfer pricing methods. The most appropriate method depends on the nature of the transaction and the availability of comparable data:

Method	How It Works	Best Suited For
Comparable Uncontrolled Price (CUP)	Compares the controlled price directly to a price charged in a comparable uncontrolled transaction	Commodity trades, standard loans
Resale Price Method (RPM)	Works back from the resale price to a gross margin; the remainder is the arm’s length purchase price	Distribution, resale of goods
Cost Plus Method (CPM)	Adds an arm’s length gross mark-up to costs incurred by the supplier of goods or services	Manufacturing, services
Transactional Net Margin Method (TNMM)	Compares net profit margins to those of comparable independent companies	Most intercompany service, distribution, and manufacturing transactions
Profit Split Method (PSM)	Allocates combined profits between parties based on relative contributions	Transactions involving unique intangibles or integrated operations

Note: The TNMM is the most widely used method in Australian transfer pricing practice, particularly for Chinese-owned subsidiaries engaged in distribution or services, because comparable company databases (e.g. TP Catalyst, Bureau van Dijk) provide accessible benchmarking data.

Common Transfer Pricing Issues for Chinese-Owned Australian Entities

INP Group has extensive experience advising Chinese parent companies and their Australian subsidiaries. The most common transfer pricing issues we encounter in this context include:

- Intercompany loans: Chinese parent companies frequently fund their Australian subsidiaries through shareholder loans. The ATO scrutinises interest rates on these loans under the CUP method and the published guidance in PCG 2020/4 (international related-party financing arrangements). Rates that are not within the arm’s length range attract upward adjustments and penalties.
- Management fees and service charges: Payments from Australian subsidiaries to Chinese head offices for management, technical, or IT services must be supported by evidence of actual services rendered and an arm’s length price. The ATO will deny deductions for service charges that cannot be substantiated.
- Distribution and buy-sell arrangements: Many Chinese groups supply goods to their Australian subsidiaries for on-sale. The gross margin earned by the Australian distributor must be benchmarked against independent distributors. Margins that are too thin may indicate under-pricing of the Australian entity’s distribution function.
- Royalties and IP licensing: Payments for the use of trademarks, patents, or software licenced from a Chinese parent must be priced at arm’s length. IP arrangements are a focus area for ATO compliance activity.
- IDS non-disclosure: Many smaller Chinese-owned entities are unaware that cross-border related-party dealings exceeding AUD 2 million must be disclosed in the International Dealings Schedule. Late or incorrect IDS lodgements attract ATO scrutiny and may trigger a review.

Transfer Pricing Penalties in Australia

The ATO imposes significant penalties for transfer pricing non-compliance. Understanding the penalty regime is essential for risk management:

- Shortfall penalties: If the ATO re-determines a transfer price and assesses additional tax, a base penalty of 25% applies to the tax shortfall. This increases to 50% if the taxpayer’s treatment was ‘reckless’, and to 75% if it was intentionally disregarding the law.
- Documentation concession: Taxpayers who have prepared transfer pricing documentation that complies with TR 2014/8 are eligible for a 20-percentage-point reduction in the shortfall penalty rate — reducing the base rate from 25% to 5%. This is a strong incentive to maintain contemporaneous documentation even for smaller entities.
- Lack of reasonably arguable position (RAP): Where no documentation exists and the ATO considers the taxpayer did not have a reasonably arguable position, the full penalty rate applies without reduction.
- Interest: The general interest charge (GIC) applies to unpaid tax from the original lodgement date, currently at approximately 11% per annum, which can compound significantly over a multi-year ATO review period.

How INP Group Can Help

INP Group’s transfer pricing team provides end-to-end support across the compliance and advisory lifecycle:

Documentation Preparation

- Preparation of compliant Local Files, Master Files, and Country-by-Country Reports
- Economic benchmarking using leading databases (TP Catalyst, Bureau van Dijk / Orbis)
- Functional analysis and value chain mapping
- IDS preparation and lodgement support

Intercompany Policy Design

- Designing arm’s length pricing policies for intercompany transactions across your group
- Advising on optimal transfer pricing methods for goods, services, loans, and IP
- Structuring intercompany agreements to reflect the economic substance of arrangement

ATO Audit and Risk Management

- Representation and support in ATO transfer pricing reviews and audits
- Responding to ATO Notifications of Transfer Pricing Examinations
- Risk assessments using the ATO’s Transfer Pricing Risk Assessment Framework
- Liaison with the ATO’s Large Business and International division on your behalf

Advance Pricing Arrangements (APAs)

- Advising on the suitability and process for seeking a unilateral or bilateral Advance Pricing Arrangement
- Preparing APA applications and managing negotiations with the ATO (and foreign competent authorities for bilateral APAs)

Thin Capitalisation and Related Matters

For groups with intercompany debt, INP Group also advises on Australia’s thin capitalisation rules under Division 820 of the ITAA 1997, including the fixed ratio test (30% of tax EBITDA), group ratio test, and third party debt test. From income years beginning on or after 1 July 2023, the previous safe harbour method was replaced with the fixed ratio test as the default. Thin capitalisation and transfer pricing frequently interact — we advise on both together.

Why Choose INP Group for Transfer Pricing?

Bilingual expertise
Our transfer pricing team is fluent in both English and Mandarin, enabling seamless communication with Chinese parent companies and their Australian subsidiaries — from technical discussions to document review.

Specialist China-Australia focus
INP Group is one of Australia’s leading bilingual chartered accounting firms, with a dedicated China Practice serving SOEs, ASX-listed Chinese subsidiaries, and large private Chinese companies entering the Australian market. Transfer pricing is integral to every China-Australia structure we advise on.

End-to-end compliance
We handle the full transfer pricing compliance cycle — from IDS preparation and Local File documentation through to ATO audit support — under one roof, so you have continuity across your engagement.

National coverage
With offices in Melbourne, Sydney, Adelaide, Perth, and Brisbane, INP Group can serve your entity wherever it is located in Australia.

Trusted by multinationals
Our clients include listed company groups, private Chinese enterprises, and state-owned enterprises. We understand the regulatory sensitivity, SASAC requirements, and commercial pressures that characterise cross-border investment from China.

- Bilingual expertise: Our transfer pricing team is fluent in both English and Mandarin, enabling seamless communication with Chinese parent companies and their Australian subsidiaries — from technical discussions to document review.
- Specialist China-Australia focus: INP Group is one of Australia’s leading bilingual chartered accounting firms, with a dedicated China Practice serving SOEs, ASX-listed Chinese subsidiaries, and large private Chinese companies entering the Australian market. Transfer pricing is integral to every China-Australia structure we advise on.
- End-to-end compliance: We handle the full transfer pricing compliance cycle — from IDS preparation and Local File documentation through to ATO audit support — under one roof, so you have continuity across your engagement.
- National coverage: With offices in Melbourne, Sydney, Adelaide, Perth, and Brisbane, INP Group can serve your entity wherever it is located in Australia.
- Trusted by multinationals: Our clients include listed company groups, private Chinese enterprises, and state-owned enterprises. We understand the regulatory sensitivity, SASAC requirements, and commercial pressures that characterise cross-border investment from China.

Frequently Asked Questions

Q: Do I need transfer pricing documentation if my Australian company is small?

Any entity with cross-border related-party dealings exceeding AUD 2 million in aggregate must disclose these in the International Dealings Schedule (IDS). Whether full documentation is required depends on the risk profile of the transactions. Entities with dealings under AUD 25 million that meet the criteria in PCG 2017/2 may qualify for the simplified documentation concession. INP Group can assess your eligibility and advise accordingly.

Q: My Chinese parent charges a management fee to our Australian company. Is this a transfer pricing issue?

Yes. Management fees paid by an Australian subsidiary to its offshore parent are a related-party transaction and must be priced on arm’s length terms. The ATO will expect evidence that: (1) real services were actually provided; (2) the Australian entity genuinely benefits from those services; and (3) the price is comparable to what an independent party would charge. INP Group regularly prepares documentation to support management fee arrangements, including cost-plus benchmarking and service agreements.

Q: What is the difference between the Local File and the Master File?

The Local File focuses on the Australian entity — its transactions, functions, risks, and how it prices its intercompany dealings. The Master File provides a group-wide overview and is required only for Significant Global Entities (groups with AUD 1 billion+ in global revenue). For most mid-sized Chinese-owned Australian subsidiaries, only a Local File is required.

Q: What transfer pricing method does the ATO prefer?

The ATO does not mandate a specific method. The correct method is the one that provides the most reliable measure of an arm’s length outcome for the particular transaction. In practice, the Transactional Net Margin Method (TNMM) is the most commonly used method in Australia for intercompany services, distribution, and manufacturing transactions. For loans, the Comparable Uncontrolled Price (CUP) method — referencing market interest rates — is standard.

Q: We are being audited by the ATO on our transfer pricing. What should we do?

Contact INP Group immediately. Early and co-ordinated engagement with the ATO is critical. We can review your existing documentation, assess the strength of your position, advise on whether the ATO’s concerns have merit, and represent you in negotiations. Having a bilingual adviser is especially important for Chinese-owned groups where the Chinese parent’s documents need to be accurately translated and presented in an ATO context.

Ready to review your transfer pricing position? INP Group offers a complimentary 30-minute consultation with a transfer pricing specialist. Contact us at admin@inpgroup.com.au or call 1300 168 368. Offices in Melbourne, Sydney, Adelaide, Perth and Brisbane.

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