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.