A transfer pricing overhaul but with more retrospective law changes

The Government's 1 November announcement of an overhaul of transfer pricing laws came as a great surprise to many, including transfer pricing specialists. Since the SNF case, practitioners had expected legislative change but had not expected it to arrive in quite so dramatic a fashion.

To start the onslaught was of course the announcement that the Government would be amending the law (from 1 July 2004) to "clarify that transfer pricing rules in our tax treaties operate as an alternative to the rules currently in the domestic law".

Many taxpayers and tax practitioners who had taken the view that our double tax treaties are a shield, not a sword, may be unpleasantly surprised by any increase in tax payable as a result of this change. Taxpayers that face such an increase will be hoping that the ATO will at least assist in negotiating with overseas revenue authorities in relation to the resulting instances of double taxation.

These issues and more were discussed at a meeting of specialist advisers and Treasury officials in Canberra this week. Amongst these concerns, The Tax Institute will again express our disappointment at the retrospective nature of this announcement and the lack of certainty in relation to the interaction between tax treaties, domestic transfer pricing rules and taxpayer obligations caused as a result.

As always, the devil will be in the detail as consultations progress.

Feel free to share your views on the transfer pricing overhaul.

Robert Jeremenko
Senior Tax Counsel


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