5 Myra Avenue
RYDE NSW 2112
17 April 1999
Review of Business Taxation
Department of the Treasury
CANBERRA ACT 2600
The following comments are made on suggestions contained in Chapter 33
of the discussion paper for the Review of Business Taxes which examines possible
improvements to the administration of the transfer pricing rules.
Paragraphs 33.43-44 support the application of transfer pricing rules
under self assessment. This is a sensible measure. However, at paragraph 33.45 the
question of detailed rules for the application of arms length methods is raised.
I submit that the codification of rules for the application of transfer
pricing methodologies is not appropriate.
By way of explanation;
- Transfer pricing is principally the application of a legal principle to unique facts and
circumstances, generally with limited data as to what independent parties would do.
- The internationally accepted methodologies usually have to be applied flexibly in order
to obtain a result consistent with the arms length principle.
- A strict definition of the methodologies would be unlikely to be capable of practicable
application in most cases.
- Detailed rules would be prescriptive. Australia would fall behind other countries
because transfer pricing methods are constantly being refined and new approaches
developed. There is a risk our law would gradually become dated. In time, this would lead
to disputes over the selection of the appropriate method with other jurisdictions. Double
taxation could result. Extra costs might be incurred because special attention would need
to be given to unique Australian law, which might be inconsistent with international
practice. Japan is in this situation now because its law does not recognize the TNMM
approach, which is endorsed by the OECD.
I trust these comments are useful for your review.