Transfer Pricing guide: Australia
Read below for more detailed information on transfer pricing regulations, document requirements, and other considerations for Australia, as well as recent industry hot topics and key developments in the country's business landscape.
Page updated 1st July 2025
Transfer Pricing regulations
Is the jurisdiction part of OECD/G20 Inclusive Framework on BEPS?
Yes.
Relevant Transfer Pricing regulation
Subdivision 815-B to 815-D of the Income Tax Assessment Act 1997; Subdivision 284-E of TAA 1953
Is this regulation aligned with the OECD Guidelines
Yes.
Transfer Pricing documentation requirements
Documentation Threshold for Preparation of Local File/ TP Documentation
Under Subdivision 815-E, ITAA 1997, country-by-country reporting entities are required to lodge local file. The obligation is limited to entities that belong to groups with over AU$1 billion in annual global income.
Note that local file in Australia is a form prescribed by the ATO focusing on the disclosures of the reporting entities' international related party dealings, including the relevant transfer pricing methods, the transfer pricing documentation percentages and relevant written agreements.
Under the general rules pertaining to transfer pricing, taxpayers may on a voluntary basis prepare transfer pricing documentation to argue they have a Reasonably Arguable Position (RAP) and mitigate any administrative penalties that may apply in the event the ATO amends an assessment.
Documentation Threshold for Preparation of Master File
The obligation is limited to entities that belong to groups with over AU$1 billion in annual global income. The parent entity prepares the Masterfile.
Documentation Threshold for Preparation of Country by Country Report
The obligation is limited to entities that belong to groups with over AU$1 billion in annual global income. The parent entity prepares the Country by Country Report.
Submission of Local File, Master File, and CbC Report Required? If so, when?
12 months after the end of the reporting period to which they relate.
If No Submission Required, any Other Deadline?
Not applicable in Australia.
Other Documentation Requirements
Short form local file is another form prescribed by the ATO as part of the local file lodgement in Australia. Under the ATO's latest schema, reporting entities are required to disclose in detail their business strategy for each of their business lines and functions, organisational structure, including personnel reporting overseas, restructure and new arrangements involving intangibles.
An international dealing schedule is required to lodge as part of the income tax return, if international related party dealings exceed $2 million.
As part of the CbC reporting obligation, General Purpose Financial Statements are also required to be submitted with the ATO on the same due date as the Income Tax Returns.
Does TP documentation / Local file Need to be Prepared Contemporaneously with Tax Return Filing (i.e., before filing the return)?
All the CbC reporting statements, including the master file, the local file and the CbC report must be lodged within 12 months after the end of the reporting period to which they relate.
The International Dealing Schedule forms part of the income tax return and must be lodged together with the income tax return when it falls due.
Taxpayers may on a voluntary basis prepare transfer pricing documentation to substantiate their compliance with the arm's length principle beyond the minimum statutory requirements.
Transfer Pricing Specific Returns
Preparation of TP Return Required?
No.
Deadline for TP Return Filing
None.
Key information to be included in the TP Return
Not applicable in Australia.
Benchmarking - Local Tax Authority Preferences
Local vs Regional Comparables Set
Local preferred.
Note that Australian Tax Office has not published detailed guidance on how benchmarking analysis should be undertaken. Subdivision 815-B and 815-C requires arm's length conditions to be determined to achieve consistency with OECD guidelines. It is therefore implicit that benchmarking analysis are undertaken in a way which best achieves consistency with the guidance on benchmarking analysis in OECD guidelines.
The preferences provided in this section are based on practice experience.
Single-Year vs Multi-Year Analysis
Multi-year analysis (ordinarily over 5 years)
Public vs Private Comparables
Public companies preferred.
Interquartile Range or Full Range
In practice, ATO generally places heavier reliance on the Interquartile, especially when applying the transactional net margin method.
Transaction-Based or Aggregate Approach, or Both
No, Australia's legislatin does not specify any particular method to be used other than the "most appropriate" method in Section 815-125(2), ITAA1997.
How Often are Benchmarking Sets Renewed (financial update versus full scope BMS preparation)
Conducting a fresh search for comparable companies is not required every year. Typically, existing comparables can be carried forward by updating their financial data for 1 or 2 additional years, provided there are no significant changes in their functional profile or industry conditions.
TP Penalties
In Case of Delayed Submission of Documentation
Significant Global Entity penalties (which is the base penalty amount x 500) if taxapyers are late for CbC statements lodgement and any other tax lodgements.
No penalties for transfer pricing documentation as it is voluntary.
In case of Income Adjustments in Course of a Tax audit
If the ATO amends a taxpayer’s assessment resulting in additional income tax in course of a tax audit, the taxpayer becomes liable for an administrative penalty under Subdivision 284-C TAA 1953. However, the penalty may be reduced if the taxpayer can demonstrate that they can establish a reasonably arguable position by meeting the transfer pricing documentation requirements set out in Subdivision 284-E TAA 1953.
Other Considerations
APA & MAP Availability
Both APA and MAP are available in Australia.
Applicability of Safe Harbour Rules
Australia has a number of transfer pricing simplification measures that are subject to various thresholds. However, the simplication measures do not constitute literal "safe harbours" to the extent that they do not waive the application of the underlying statutory test.
There are 7 available simplified transfer pricing record keeping options under ATO's Practice Compliance Guideline 2017/2:
- Small taxpayers
- Distributors
- Low value adding intra-group services
- Low-level inbound loans
- Materiality
- Technical services
- Low-level outbound loans
In addition, ATO's Practice Compliance Guideline 2017/4 sets out general principles relevant to the framework for considering and applying compliance resources to related party financing arrnagements. Under certain conditions, interest-free loans between related parties are considered akin to a subscription of equity and are viewed as low transfer pricing risk dealings.
Critical Transfer Pricing Issues Prevailing in the Jurisdiction, if any
Payments to international related parties in relation to royalty and intangibles have been the key area in ATO's compliance activities in recent years; There are 3 ongoing court cases that are related to the multinational's royalty withholding tax in Australia, including the cases between the ATO and Pepsi, Oracle and Coco-Cola.
For CbC reporting entities, the ATO recently introduced a new short form local file Schema Version 4.0 for reporting period starting on or after 1 January 2024. The information disclosure under Version 4.0 are detailed and extensive.
Criteria/ Guidelines for Transfer Pricing Audit/ Assessments by Tax Authority
ATO takes a risk-based approach when it comes to transfer pricing review. The more siginificant and broader the scope of the international dealings with related parties, the more likely the review. Also, business with significant levels of dealings whose tax performance is low compared to industry standards are at the greatest risk of transfer pricing review.
Note that transfer pricing review is also included in ATO's regular review programs for large corporates, such as Top 100 and Top 1,000 program.
Relevant Regulations and Rulings with Respect to Thin Capitalisation or Debt Capacity in the Jurisdiction
Div 820 of ITAA 1997 stipulates the thin capitalisation rules and debt deduction creation rules in Australia.
Royalty Withholding Tax and Intangibles Related to Payments
Embedded royalty together with royalty withholding tax is one of the hot topics in this area. In November 2024, the High Court granted special leave for the Australian Tax Office (ATO) to appeal the Full Federal Court’s decision in PepsiCo Inc v Commissioner of Taxation. Multinational companies may need to reassess their cross-border payment structures to determine whether any portion relates to intellectual property rights for which Australian royalty withholding tax should be applied. This includes payments related to brands, software, data, know-how, formulations, or other intangible assets, even if such elements are not explicitly identified in existing agreements.
New thin cap regime and DDCR
Following the enactment of the Treasury Laws Amendment Bill 2023, new thin capitalisation rules apply to years beginning on or after 1 July 2023, and debt deduction creation rules to years beginning on or after 1 July 2024. Both regimes place limits on income tax deductions for interest and other debt-related expenses. Intra-group financing arrangements should be reviewed to determine if any debt deduction would be disallowed under the new regimes, and if the amount of debt reflects an arm’s length amount and the interest rate reflects arm’s length terms.
New short form local file
The ATO has announced major changes to Short Form Local File reporting, effective for lodgements from 1 January 2025 for reporting periods starting on or after 1 January 2024. Under the ATO's latest schema, reporting entities are required to disclosed in detail their business strategy for each of their business lines and functions, organisational structure, including personnel reporting overseas, restructure and new arrangements involving intangibles.
Public CbC reporting
Public country-by-country (CBC) reporting is a new regime in Australia that requires certain large multinational enterprises to publish selected tax information to the public for years starting on or after 1 July 2024. It applies to CbC reporting parent entities with an Australian presence and at least $10 million in Australia-sourced aggregated turnover to publish selected tax information, including revenues, profits, income taxes, activities and international related party dealings of the global group.
The ATO does not conduct mandatory annual transfer pricing audits. Instead, it adopts a risk-based approach. The more significant and broader the scope of the international dealings with related parties, the more likely the review. Also, business with significant levels of dealings whose tax performance is low compared to industry standards are at the greatest risk of transfer pricing review.
The ATO also reviews large businesses and multinational groups regularly through ongoing review programs such as the Top 100 Program (targeting Australia’s largest and most complex corporate taxpayers) and the Top 1000 Program (focused on economic groups with Australian turnover exceeding $350 million). International related party dealings and relevant transfer pricing matters are reviewed as part of those review programs.
To support its compliance activities, the ATO requires large corporates to disclose detailed information about their international arrangements through strenuous reporting regimes, which provide data for identifying risk areas and selecting cases for further review. Key disclosures include:
- International Dealings Schedule: annual reporting of the nature and quantum of related party cross-border transactions, the transfer pricing method adopted and if any transfer pricing documentation;
- Country-by-Country Reporting: applicable to entities that are belong to groups with over AU$1 billion in annual global income.
- Hybrid Mismatch Rules: aimed at detecting and neutralising tax benefits arising from cross-border hybrid arrangements;
- Reportable Tax Position Schedule: used to disclose uncertain tax positions, particularly those that are the focus of the ATO in the relevant income year, for example centralised services hub arrangements, cross-border, round robin financing arrangements.
Entities classified as SGEs (with global revenue of AU$1 billion or more) are subject to an enhanced tax integrity regime and hefty penalty, which includes:
- Diverted Profits Tax: imposes a 40% penalty tax on profits deemed to have been artificially shifted from Australia through related party arrangements lacking sufficient economic substance;
- Multinational Anti-Avoidance Law: targets artificial structures designed to avoid a taxable presence in Australia, especially in relation to digital services and sales to Australian customers.
Administrative statement penalties, scheme penalties and failure to lodge (FTL) on time penalties are increased when they are applied to Significant Global Entities(SGEs). The FTL on time base penalty amount is multiplied by 500 where the entity is a SGE.
Additionally, Australia has legislated the OECD’s Pillar Two framework, which establishes a global and domestic minimum tax rate of 15% for multinational enterprises with consolidated revenue exceeding €750 million. The rules will apply from 1 January 2024 for the Income Inclusion Rule and Domestic Minimum Tax, and 1 January 2025 for the Undertaxed Profits Rule.
Advance Pricing Arrangement
The Advance Pricing Arrangement program is a key risk management and dispute prevention tool offered by the ATO. It allows taxpayers to proactively agree with the ATO on the transfer pricing methodologies to be applied to their cross-border transactions for a specified period, thereby reducing the risk of future transfer pricing disputes.
Entering into an APA can be a lengthy process, typically taking around two years to complete. The timeframe depends on the complexity of the arrangement and the level of cooperation from both the taxpayer and any involved foreign tax authorities. The procedural framework is outlined in PS LA 2015/4.
APAs can be unilateral (between the taxpayer and ATO), bilateral (between ATO and a foreign tax authority under a Double Tax Agreement), or multilateral (between multiple tax authorities). An APA generally covers a period of 3 to 5 years.
The ATO is more likely to accept an APA application when certain factors are present, including alignment with the OECD Transfer Pricing Guidelines; a strong tax compliance history; the arrangement involves significant complexity or materiality; a high likelihood the arrangement will be, or has already been, implemented; a meaningful risk of economic double taxation if no APA is in place. The total APA requests accepted by the ATO was 48 in 2022 income year.
Where an APA is in effect, the ATO will not impose additional income tax beyond what is determined under the agreement for the covered transactions.
Mutual Agreement Procedure
The Mutual Agreement Procedure is also available to taxpayers under Double Tax Agreements. The MAP is initiated by the taxpayer but conducted between tax authorities to resolve international tax disputes, particularly in cases of double taxation or disputes arising from transfer pricing adjustments.
Taxpayers may request a MAP when they consider the actions of one or both jurisdictions results (or will result) in taxation not in accordance with a tax treaty. The risk of such taxation must be probable (not merely possible). Also, taxpayers may request a MAP when they have initiated an adjustment in good faith.
Most of Australia’s tax treaties require taxpayers to request their case be reviewed in a MAP within 3 years of taxpayer first being advised that they are to be (or likely to be) taxed not in accordance with a treaty. However, the time limit specified in the article dealing with MAP in each of Australia’s tax treaties varies.
The ATO has committed to the OECD’s recommended average timeframe of 2 years to resolve MAP cases.
Alignment with OECD Guidelines
Australia is a member of the OECD and has adopted the OECD Guidelines for transfer pricing. For years starting on or after 1 January 2022, the updated legislation now explicitly incorporates the 2022 OECD Guidelines.
Australia has adopted the OECD’s three-tiered documentation framework under BEPS Action 13, requiring the preparation and submission of a Master File, Local File, and Country-by-Country Report. However, Australia’s Local File reporting deviates significantly from the OECD standard adopted in many other jurisdictions.
Taxpayers must select the most appropriate transfer pricing method on a transaction-by-transaction basis, in accordance with both Australian law and OECD guidance. Acceptable methods include traditional transaction methods (such as the comparable uncontrolled price, resale price, and cost-plus methods) and profit-based methods (such as the profit-split method and the transactional net margin method). Alternative methods may also be acceptable if justifiable and lead to an arm’s length outcome.
Simplified Transfer Pricing Record-Keeping options are available for smaller or lower risk. If eligible, taxpayers do not need to prepare traditional transfer pricing analysis or benchmark studies for certain dealings (low value services, inbound/outbound loans, distributions of tangible goods, management and administrative services).
Benchmarking Analyses Nuances or Preferences
ATO has not published detailed guidance on how benchmarking analysis should be undertaken. Subdivision 815-B and 815-C requires arm's length conditions to be determined to achieve consistency with OECD guidelines. It is therefore implicit that benchmarking analysis are undertaken in a way which best achieves consistency with the guidance on benchmarking analysis in OECD guidelines.
Local comparable companies are preferred, although there is no formal legal requirement. Foreign comparables may be accepted if it can be demonstrated that a search for reliable local comparables has been conducted but are unavailable.
Multi-year analyses, typically over 5 years, are generally accepted. However, the ATO scrutinizes cases where low-profit or loss-making years are averaged with high-profit years to smooth results and achieve an overall acceptable range.
In practice, ATO generally places heavier reliance on the interquartile, especially when applying the transactional net margin method.
Conducting a fresh search for comparable companies is not required every year. Typically, existing comparables can be carried forward by updating their financial data for 1 or 2 additional years, provided there are no significant changes in their functional profile or industry conditions.
Weighted averages are generally preferred over simple averages in multi-year analyses. Pooled results are rarely used in Australian transfer pricing practice.
Thin Capitalisation Considerations for Intercompany Loans
Australia’s thin capitalisation rules apply to limit deductions for interest and other debt-related expenses incurred when funding Australian operations, whether by foreign investors into Australia or Australian entities investing overseas.
Effective from 1 July 2023, 3 new tests apply to determine allowable deductions:
- Default Fixed Ratio Test: Limits deductions to 30% of taxable EBITDA, with the option to carry forward disallowed amounts (FRT disallowed amounts) for up to 15 years.
- Group Ratio Test: An alternative based on the gearing ratio of the worldwide group.
- Third-Party Debt Test: Available for general class investors and non-ADI financial entities.
The debt deduction creation rules apply to years beginning on or after 1 July 2024, disallowing debt deductions on related party borrowings under two types of arrangements:
- Acquiring an CGT asset, or legal or equitable obligation from an associate pair;
- Fund, or facilitate the funding of prescribed payments to an associate pair;
Whilst the above set rules on disallowing related party debt deduction, taxpayers must independently assess if the amount of debt reflects an arm’s length amount and the interest rate reflects arm’s length terms under the transfer pricing provisions.
Transfer Pricing Primary Risk Areas in Jurisdiction
The larger and more complex a taxpayer’s international related-party transactions, the greater the likelihood of ATO review. Taxpayers with substantial cross-border dealings coupled with tax results significantly below industry benchmarks face heightened scrutiny.
Payments for intellectual property usage (such as trademarks, patents, copyrights, and know-how) are particularly challenging to price and susceptible to shifting between jurisdictions, which can erode Australia’s tax base. ATO has identified the mischaracterisation of payments in relation to software and intellectual rights and intangible migration arrangements as their focus areas recently.
Cross-border financing arrangements, including related-party loans and guarantees, pose risks of profit shifting through manipulated interest rates, debt levels, and loan terms. Risk areas include whether interest rates and debt amounts are consistent with arm’s length standards, the pricing of related-party guarantees or support arrangements, and structuring debt to avoid withholding tax or exploit treaty benefits.
