Transfer Pricing Rules Revision: Consultation Paper

The Australian Tax Office has issued a Consultation Paper to discuss proposed changes to the Transfer Pricing Rules. Broadly, the changes are intended to align the law to the “Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations” issued by OECD in 2010 and other international law.

From an Indian law perspective, the issues discussed in the Consultation Paper will have important bearing because similar issues arise in the Indian law as well. Broadly, the Consultation Paper deals in detail with the following issues:

(i) Determining the profits of permanent establishments by the profit allocation rules based on the OECD Model Tax Convention on Income and on Capital. Should this be changed to a functionally separate entity approach?

(ii) Issues relating to self-assessment of transfer pricing and its implications for record keeping, documentation, and time limits for amendments;

(iii) Whether the OECD Model Commentaries should be extended beyond transfer pricing to enable the Commentaries to be taken into account in interpreting and applying other treaty articles?