Transfer pricing developments

Tax Watch: Edtion 1, 2014

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OECD recommends masterfile approach for transfer pricing reporting

The Organisation for Economic Co-operation and Development (OECD ) has recently released the much anticipated discussion draft of its suggested common approach to transfer pricing documentation, including the preparation of a template for country-by-country (CBC) reporting to tax authorities.

This is one of the first deliverables under the OECD's 15 step Base Erosion and Profit Shifting (BEPS) Action Plan. These changes will have significant impact on the transfer pricing documentation requirements as well as increase the amount of information that could possibly be made available to any tax authority.

The OECD recommends a consistent documentation approach using the masterfile concept. The masterfile would contain information relevant for all members of a multinational group to give a complete picture of the global business. The local country files would focus on the individual country’s functional profile and testing the intercompany transactions relevant to the local company.

The most controversial aspect of the discussion document is the recommendation that the parent company compiles information consisting of a number of key metrics for each country activity (e.g. revenue, EBIT, tax paid). OECD has provided a template of the form and type of information that should be disclosed.  Any tax authority could then request the global masterfile including the CBC template, as an aid in its risk assessment process of a particular group company.

While these recommendations seek to gain better transparency of a multinational group’s tax affairs, the cost of ensuring systems can collate the data in the form required cannot be underestimated.

There is also greater risk that a tax authority starts to draw conclusions on a particular country’s transfer pricing practices simply from the information provided.

While the Inland Revenue has not clearly stated its position on the CBC template, we see most tax authorities endorsing the OECD’s recommendations. With greater attention on transfer pricing resulting from the current focus on BEPS, it is essential that companies maintain contemporaneous transfer pricing documentation supporting their transfer pricing policies from a New Zealand perspective as expected by the Inland Revenue.

The OECD document can be accessed here.

ATO release draft tax determination on market support payments

On 28 January 2014, the Australian Tax Office (ATO) released a draft tax determination (TD 2014/D7) on the deductibility of market support payments (MSPs) made by Australian companies to its foreign affiliates).  The draft determination is more taxpayer friendly than an earlier draft issued on the subject.


While the draft determination addresses deductibility in the context of Australian income tax law, it may also lead to the New Zealand Inland Revenue undertaking a closer review of the circumstances in which New Zealand companies are claiming deductions for MSPs.

The draft provides numerous examples as guidance of the circumstances in which MSPs would be deductible. The conclusions around deductibility, as illustrated the examples, highlight that deductibility of MSPs is largely dependent on the facts.  There are examples in the draft determination where the ATO would likely deny a deduction for MSPs. An example of that is when the Australian parent is perceived to have made a MSP for the sole purpose of preserving the capital value of the Australian parent’s investment in the subsidiary.

MSPs have always been under close scrutiny by the Inland Revenue, but to date Inland Revenue have not issued any detailed public guidance.

New Zealand companies making MSP’s to affiliates should also review the circumstances in which they make the MSP’s in light of the latest Australian determination on the issue.

The ATO’s draft determination can be accessed here.


If you would like to understand more about the above issues or how transfer pricing can support your regional strategy, please contact our transfer pricing team:

Mark Loveday
Partner, Transfer Pricing

Tel: +64 9 300 7085

Ranesh Singh
Executive Director, Transfer Pricing

Tel: +64 9 300 8022