Episode 7 - Transfer pricing - Outbound Issues | Tax Chats with Danielle Sherwin

Summary

This episode of 'Tax Chats' discusses outbound transfer pricing, focusing on how Australian companies with foreign subsidiaries should price their transactions. It emphasizes the importance of establishing a transfer pricing policy early to ensure tax risks are managed across jurisdictions. The discussion also highlights the need to consider Australia's Controlled Foreign Company (CFC) rules, perform active income tests, and ensure proper disclosures in the International Dealing Schedule alongside the tax return. These tips aim to help companies manage their international tax obligations effectively.

Takeaways

• 💼 Outbound transfer pricing refers to pricing transactions between foreign subsidiaries of Australian companies.
• 📋 Establishing a clear transfer pricing policy early is essential for consistency and managing tax risks.
• 🌏 The transfer pricing policy should ensure transactions are priced consistently across tax jurisdictions.
• 🏛️ Controlled Foreign Company (CFC) rules in Australia attribute income from foreign subsidiaries back into the Australian tax system.
• 🧾 CFC rules require active income test or attributable income calculations annually when filing tax returns.
• 📊 All relevant information must be disclosed in the International Dealing Schedule, which is filed alongside the tax return.
• 📝 Transfer pricing documentation and support should be in place for companies exploring or exiting international markets.
• ⚖️ Properly disclosing relevant transfer pricing information is crucial to avoid tax risks.
• 🔍 It's important to ensure correct disclosures and documentation are completed before filing local tax returns.
• 💡 Transfer pricing is a key focus for RSM’s International tax and transfer pricing team, handled daily.

Q & A

What is the focus of the episode in this transcript?

The episode focuses on outbound transfer pricing in the context of international tax, particularly related to foreign subsidiaries of Australian companies.

What is outbound transfer pricing?

Outbound transfer pricing refers to the pricing of transactions between foreign subsidiaries and their parent companies in different jurisdictions, ensuring compliance with tax regulations.

Why is it important to set up a transfer pricing policy early?

Setting up a transfer pricing policy early provides clear guidance on how transactions should be priced consistently year after year and helps manage tax risks between different tax jurisdictions.

What are the Australian Controlled Foreign Company (CFC) rules?

The Australian CFC rules attribute income from foreign subsidiaries back into the Australian tax net, requiring companies to report this income in their tax returns.

How do the CFC rules impact tax filings?

Each year, companies must perform tests like the active income test or attributable income calculations and include these disclosures in the International Dealing Schedule, which is submitted with the company's tax return.

What should companies consider when entering new markets with foreign subsidiaries?

When entering new markets, companies should focus on establishing proper transfer pricing documentation and ensuring compliance with tax laws, including meeting reporting obligations for international dealings.

What is the International Dealing Schedule?

The International Dealing Schedule is a report that includes details of international transactions, transfer pricing documentation, and controlled foreign company (CFC) income, which must be submitted with the tax return.

What are the 'savey disclosures' mentioned in the transcript?

The 'savey disclosures' refer to the required disclosures on international transactions and tax matters that must be properly reported in the International Dealing Schedule to ensure compliance with local tax authorities.

What happens if proper transfer pricing documentation is not maintained?

Failure to maintain proper transfer pricing documentation can lead to inconsistencies in pricing transactions, increased tax risks, and potential penalties from tax authorities.

Why is consistency in transfer pricing important?

Consistency in transfer pricing ensures that transactions between related entities are priced similarly year after year, which helps to avoid disputes with tax authorities and minimize tax risks.

Outlines

00:00

🎬 Introduction to Outbound Transfer Pricing

This section introduces the episode, focusing on international tax, particularly outbound transfer pricing. The RSM team, specializing in this area, deals with transfer pricing regularly. Outbound transfer pricing involves pricing transactions between foreign subsidiaries and their Australian parent companies. A key step is establishing a transfer pricing policy early, which helps ensure consistency and manages tax risks across different tax jurisdictions.

📊 Importance of Transfer Pricing Policies

The emphasis here is on the need for companies to establish a clear transfer pricing policy at the beginning of international operations. This policy offers guidance on pricing transactions annually and ensures tax risks between jurisdictions are managed effectively. Early implementation is crucial for the long-term success of the transfer pricing strategy.

📜 Controlled Foreign Company (CFC) Rules

This paragraph discusses Australia's Controlled Foreign Company (CFC) rules, which attribute income from foreign subsidiaries back to Australia. Each year, companies must perform active income and attributable income tests, which are then disclosed on the International Dealing Schedule, filed with the tax return. These tests are vital for compliance with Australian tax regulations when managing foreign subsidiaries.

🌍 Transfer Pricing and Market Expansion

This section covers the importance of transfer pricing when entering new markets or expanding international operations. Proper transfer pricing documentation and support must be in place, especially when establishing overseas operations. The speaker advises companies to ensure their transfer pricing is in order when venturing into new markets.

📑 International Dealing Schedule and Disclosures

Here, the focus is on proper disclosures in the International Dealing Schedule. Companies must ensure that all relevant transfer pricing and income attribution are properly reported. This is a critical compliance step in filing local tax returns when dealing with foreign subsidiaries.

🔍 Tips on Outbound Transfer Pricing

The speaker concludes with a summary of tips for managing outbound transfer pricing. This includes ensuring proper documentation, compliance with CFC rules, and appropriate disclosures. Companies are encouraged to reach out with any questions and stay tuned for more tax-related content.

Keywords

💡Transfer Pricing

Transfer pricing refers to the pricing of transactions between related entities, such as subsidiaries of multinational companies. In the video, the focus is on outbound transfer pricing, which deals with how Australian companies price transactions with their foreign subsidiaries. It’s crucial for compliance with international tax regulations and to avoid tax risks.

💡Outbound Perspective

This refers to the focus on transactions between Australian companies and their foreign subsidiaries, especially regarding how these transactions are priced. The video emphasizes the importance of transfer pricing from an outbound perspective to ensure compliance with tax laws across different jurisdictions.

💡Transfer Pricing Policy

A transfer pricing policy is a set of guidelines that companies use to determine how to price transactions between related entities. The video stresses the importance of establishing this policy early to provide consistency and manage tax risks between different countries’ tax jurisdictions.

💡Tax Risks

Tax risks refer to potential issues or liabilities that arise from not complying with tax regulations. In the context of transfer pricing, managing tax risks ensures that the pricing of transactions between a parent company and its subsidiaries adheres to both countries’ tax laws, minimizing potential disputes or penalties.

💡Controlled Foreign Company (CFC) Rules

CFC rules are tax regulations that attribute income from a company’s foreign subsidiaries back to the parent company’s country of residence. In the video, the Australian CFC rules are highlighted, emphasizing the importance of including the income from foreign subsidiaries in the Australian tax net.

💡Active Income Test

The active income test is used to determine whether a foreign subsidiary’s income qualifies as 'active' and is therefore not subject to CFC rules. The video mentions that Australian companies must perform these calculations annually to determine if income needs to be attributed back to Australia.

💡Attributable Income Calculations

These calculations determine the portion of income from foreign subsidiaries that should be attributed back to the parent company for tax purposes. The video underscores the need for Australian companies to perform these calculations to comply with CFC rules and properly report on their tax returns.

💡International Dealing Schedule

The International Dealing Schedule is a document that Australian companies must file alongside their tax return. It discloses details about international transactions, including transfer pricing and CFC calculations. The video emphasizes the importance of completing this schedule to ensure proper tax compliance.

💡Tax Return

A tax return is a formal statement filed with the tax authorities detailing income, expenses, and tax liabilities. In the video, Australian companies are reminded that they need to include their transfer pricing documentation and other international tax considerations, such as CFC disclosures, in their annual tax return.

💡Documentation

In the context of transfer pricing, documentation refers to the records companies must keep to justify the pricing of transactions between related entities. The video highlights the importance of maintaining proper documentation to support the transfer pricing policies and comply with tax authorities in different jurisdictions.

Highlights

Introduction to outbound transfer pricing for foreign subsidiaries of Australian companies.

Transfer pricing is an integral part of International tax and needs to be handled consistently across multiple jurisdictions.

Establishing a transfer pricing policy at the outset is crucial for clear guidance and consistency year-on-year.

Transfer pricing helps manage tax risks between two different tax jurisdictions.

Controlled Foreign Company (CFC) rules in Australia attribute the income of foreign subsidiaries back into the Australian tax system.

Annual CFC rule compliance includes performing active income tests and attributable income calculations.

Transfer pricing documentation is crucial for businesses entering new international markets or expanding existing overseas operations.

Proper documentation is important to ensure tax compliance and mitigate risks.

Disclosures regarding international dealings need to be included in the International Dealing Schedule and lodged with the Australian tax return.

The importance of timely disclosure in the International Dealing Schedule to avoid any tax issues.

Outbound transfer pricing ensures that transactions between Australian companies and their foreign subsidiaries are priced fairly and according to tax regulations.

Support and documentation for transfer pricing must be in place when exploring new international markets.

Effective transfer pricing documentation ensures alignment with Australian tax obligations and reduces potential disputes.

Attention should be paid to CFC rules and active income tests annually for compliance.

Consulting transfer pricing professionals can provide significant insights for tax risk management when dealing with international subsidiaries.

Transcripts

[Music]

hi and welcome back to tax chats

focusing on all things International tax

in today's episode we're going to be

looking at transfer pricing but from an

outbound

perspective transfer pricing is part of

what we do at our International tax and

transfer pricing team here at RSM so

it's something we see a lot of on a

day-to-day

basis outbound transfer pricing is when

you have foreign subsidiaries of

Australian companies and looking at the

transaction flows and how those

transactions should be priced so one of

the most important things is setting up

a transfer pricing policy it's usually

best done right at the outset uh and it

just gives kind of clear guidance for

everyone involved about um how they

should be priced on an ongoing basis

year on year is consistent and it also

ensures that the tax risks are being

managed between the two different tax

jurisdictions

so it's a really important thing to get

started on and the earlier the

better one of the other things on

transfer pricing on an outbound

perspective is also making sure you've

considered the controlled foreign

company rules so there are Australian

CFC rules and these are attributing

income of those foreign subsidiaries

back into the Australian tax net now uh

these rules operate each year so when

you do your tax return you should be

performing active income test

calculations

or attributable income calculations if

required and all of these things and

disclosures will go on your

International dealing schedule and that

will get lodged alongside your tax

return so when you're looking at maybe

exiting the Australian market and trying

out some new markets for the first time

or if you have established operations

overseas getting your transfer pricing

support and documentation in order is a

really important element the other

important thing is looking at the savey

disclosures and they're making sure that

all of them are properly disclosed in

your International dealing schedule

before your loal tax return so they're

just a few tips and tricks on some of

the things that we see on an outbound

perspective um let us know if you have

any questions and I look forward to

seeing you in the next tax chats

[Music]