Transfer pricing documentation and valuation advice to improve your global trade compliance

Trade and ExportsTaxEconomy

31 January 2022

Due to the increasing complexity of international trade policy and the severe economic impact that the COVID-19 pandemic has had on the global economy, international traders and multinational corporations are exposed to supply chain uncertainty.

This uncertainty, combined with increased international product transport lead times, can decrease the profitability of a business and often lead to a re-structure. It’s also forcing multinationals to think about changing their global trade strategy.

Now, more so than ever, having the necessary support in place to minimise import duty, reduce trade risks and non-compliance and increase stability among the supply chain is crucial to improve a company’s strength in the market. This in turn will assist with being ready to capitalise when favourable market conditions return.

In the case of purchases from related parties, the arm’s length nature of the transaction should be demonstrated as per Customs and Transfer Pricing regulations and should be supported by appropriate transfer pricing documentation or an Advance Pricing Arrangement (APA) with the ATO for tax purposes. However, having transfer pricing documentation or an APA alone is not sufficient proof for customs valuation purposes. A Valuation Advice (VA), issued by the Australian Border Force (ABF) will allow compliant adjustment of Values, confirms Customs opinion on achieving arm’s length and is valid for five years. A VA can be applied to ensure the compliance usage of a transfer price adjustment, as it provides rulings on how to correctly assess the customs value of imported goods.

While transfer pricing documentation is not mandatory by law, there are many advantages to maintaining documentation that complies with the relevant Australian regulations. Transfer pricing documentation can also be used as evidence when applying for a VA with Australian Border Force. Having both transfer pricing documentation and a VA in place could greatly increase the trade compliance under both Tax and Customs regulations.

Advantages of Valuation Advice and Transfer Pricing documentation:

1. Valuation Advice (Customs regulations)

  • Depending on the resultant VA, a customs duty refund may be available.

  • Transfer Pricing VA applies prospectively from the date of issue and is valid for five years.

  • The VA result can also lead to a Transfer Pricing Adjustment which mainly focuses on compliance.

2. Transfer Pricing regulations

  • In the case of an audit by the ATO, eligibility for a reasonably arguable position.

  • Eligible for penalty protection in the case of audit by the ATO.

  • Positive disclosures in the tax return and Country-by-Country statements and reduced compliance in certain cases.

  • Having an APA can lead to certainty in tax positions and reduced risk of an ATO review.

Author: Matthew Morgan

Matthew is a Licensed Customs Broker & International Trade Specialist with over 18 years experience working in the logistics and professional services industries. His experience is complemented by university studies in international business, public relations and customs administration. Matthew is actively involved within the National Committee for Trade Facilitation (NCTF), which is the primary group that actively engages with the Department of Home Affairs on trade modernization initiatives. With a passion for emerging technologies and Logistics 4.0, Matthew incorporates integrated digital solutions within his service offering to help clients optimise their supply chains, navigate the regulatory burdens of global trade and succeed in new markets