Australia – Transfer Pricing (2025)

Legal framework and scope

The primary domestic transfer pricing framework in Australia is set out in Division 815 of the Income Tax Assessment Act 1997 (ITAA 1997). Legislative changes in 2012 and 2013, notably subdivisions 815-A, 815-B and 815-C, brought the law closer to the arm’s length principle as articulated by the OECD. For years commencing on or after 1 July 2017, Australian transfer pricing law specifically refers to the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations as approved by the OECD Council and last amended on 19 May 2017, as reflected in sections 815-135 and 815-235 of the ITAA 1997. The Australian regime applies where an Australian entity obtains an Australian tax benefit from non-arm’s length cross-border conditions; the statute applies regardless of formal related-party status because there are no ownership or control thresholds in Division 815.

Arm’s length principle and the role of the OECD Guidelines

Australian law requires consistency with the arm’s length principle as described in the OECD Guidelines. The legislation directs that, in identifying arm’s length conditions, regard should be had to achieving consistency with the OECD Transfer Pricing Guidelines. The ITAA 1997 also references the OECD guidance for selecting and applying appropriate methods. Thus, the OECD Guidelines play an important role in interpreting and applying domestic law, with the statutory framework expressly incorporating those Guidelines as relevant guidance materials.

Definition of related parties

Australian transfer pricing legislation does not contain a statutory definition of related parties. Division 815 applies independently of control or ownership thresholds. Practical definitions are provided by the ATO in the International Dealings Schedule (IDS) instructions: the IDS treats as “international related parties” any overseas entity or person who participates directly or indirectly in the Australian taxpayer’s management, control or capital; any overseas entity or person in respect of which the Australian taxpayer participates directly or indirectly in the management, control or capital; and any overseas entity or person in respect of which the persons who participate directly or indirectly in its management, control or capital are the same persons who participate directly or indirectly in the Australian taxpayer’s management, control or capital. The IDS must be lodged where a taxpayer has entered into specified international dealings and forms part of the income tax return.

Methods and the criterion for use

Australian law does not prescribe specific transfer pricing methods in statute. Paragraph 815-125(2) of the ITAA 1997 provides that in identifying arm’s length conditions taxpayers should “use the method, or the combination of methods, that is the most appropriate and reliable having regard to all relevant factors.” The law notes that possible methods include those set out in materials cited in section 815-135 (i.e., the OECD TPG). Accordingly, Australia follows the OECD methods but applies the “most appropriate method” criterion rather than a rigid hierarchical ordering. The statutory factors to be considered include the respective strengths and weaknesses of candidate methods, the functions performed, assets used and risks borne, the availability of reliable information, and the degree of comparability between actual and comparable circumstances.

Comparability and ranges

Australia adopts the comparability analysis guidance of Chapter III of the OECD TPG. The statutory list of factors to be considered when identifying comparable circumstances includes: the functions performed, assets used and risks borne by the entities; the characteristics of the property or services transferred; the terms of relevant contracts; the economic circumstances; and the business strategies of the entities. All else equal, the ATO prefers domestic comparables where the tested party is Australian, since domestic comparables generally provide closer economic similarity; however, the choice always depends on facts and data reliability. The ATO does not use secret comparables. The legislation permits the use of an arm’s length range and statistical measures where appropriate under paragraph 815-125(2). Regarding comparability adjustments, paragraph 815-125(4) does not mandate quantitative adjustments in all cases but provides that where there are material differences it will be sufficient if reasonably accurate adjustments can be made to eliminate the effect of those differences.

Transfer pricing documentation and reporting

Subdivision 815-E of the ITAA 1997 implements CbC reporting in line with OECD Action 13. Entities that are in-scope for CbC reporting—groups with annual consolidated global income exceeding AUD 1 billion—are required to lodge the country-by-country report, the master file and the local file. All CbC reporting statements must be lodged within 12 months after the end of the reporting period to which they relate, lodged electronically in an XML Schema format and in English. The IDS is part of the income tax return and must be filed when due. Taxpayers may voluntarily prepare transfer pricing documentation beyond statutory minima to support a Reasonably Arguable Position and reduce possible penalties. Subdivision 284-E of Schedule 1 to the Taxation Administration Act 1953 sets out documentation requirements for penalty mitigation and Tax Ruling TR 2014/8 explains the ATO’s views on how these provisions apply. In short, master file, local file and CbC report must be prepared and available by the time the relevant Australian income tax return is lodged for entities in scope.

Penalties, exemptions and simplification measures

Failure by a CbC reporting entity to lodge the CbC report, master file or local file attracts significant penalties under section 288-25 of Schedule 1 to the Taxation Administration Act 1953. Outside CbC reporting obligations, there are no unique statutory penalties solely for failing to prepare transfer pricing documentation, but general record-keeping and reporting penalties apply; Subdivision 284-E provides a framework for penalty mitigation where the taxpayer’s documentation meets specified requirements. Administrative statement penalties are doubled for “Significant Global Entities,” a category that includes CbC reporting entities. CbC reporting entities may request exemptions from lodging the CbC report, master file or local file on a case-by-case basis; for example, where the ATO concludes no other jurisdiction expects to receive a CbC report from Australia in relation to the entity or where there is no cross-border related-party dealings and therefore low transfer pricing risk. The ATO has issued Practical Compliance Guideline PCG 2017/2 which outlines simplified transfer pricing record-keeping options. These administrative simplifications—seven categories including small taxpayers, distributors, low value-adding intra-group services, low-level inbound loans, materiality, technical services and low-level outbound loans—are subject to thresholds and do not constitute statutory safe harbours that displace the underlying arm’s length test.

APAs and MAPs

Australia operates an APA program as a compliance tool. The Commissioner of Taxation can enter into unilateral APAs under the Commissioner’s administrative powers in sections 1-7 of the ITAA 1997, while authorised Competent Authorities may negotiate and conclude bilateral or multilateral APAs under the MAP article of applicable tax treaties. Practice Statement PS LA 2015/4 describes the administration of Advanced Pricing Arrangements in Australia and further information about Australia’s MAP administration is available in its MAP profile. Timelines for APAs and MAPs depend on the complexity of the matters in dispute and the nature of the arrangements; administrative guidance sets out procedural expectations.

Other administrative and substantive considerations

Australia’s domestic law does not explicitly require year-end adjustments, although taxpayers may choose to make adjustments to ensure that profits from international related-party transactions reflect arm’s length outcomes; APAs often stipulate specific adjustment mechanisms where appropriate. Australia does not generally apply secondary adjustments as an autonomous transfer pricing rule. On the attribution of profits to permanent establishments, Australia has not adopted the Authorised OECD Approaches (AOA) and has lodged reservations regarding the modernised Article 7; it follows the Relevant Business Activity approach and does not recognise notional dealings between parts of a single entity. This position is set out in Taxation Ruling TR 2001/11. With respect to financial transactions, Division 815 does not provide specific guidance; although the ITAA 1997 references the TPG as amended on 19 May 2017, Chapter X of the TPG on Financial Transactions (published 11 February 2020) is not included in the prescribed guidance materials absent further legislative amendment. Other domestic rules are relevant to certain transactions—for example, Division 820 (thin capitalisation) and related ATO guidance such as Taxation Ruling TR 2020/4 and Practical Compliance Guidelines PCG 2017/4 and PCG 2020/7 address aspects of arm’s length debt and financing arrangements.

Conclusion

Australia’s transfer pricing regime is grounded in Division 815 of the ITAA 1997 and expressly aligns domestic law with the OECD Transfer Pricing Guidelines up to their 19 May 2017 amendment. The law requires the selection of the most appropriate and reliable method, embraces OECD comparability practices, and imposes stringent documentation and CbC reporting obligations on groups with consolidated revenues above AUD 1 billion. Administrative simplifications exist to reduce compliance burdens for low-risk taxpayers, but they do not eliminate the statutory arm’s length test.

References

For more information and the OECD country profiles on transfer pricing see: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html