The ATO needs to look at the UK’s transfer pricing model which takes into account the size of a business in terms of assets and turnover, and not the $2 million threshold which penalises small to medium-sized businesses, says Theo Sakell, international tax partner at Pitcher Partners.
Mr Sakell told AccountantsDaily the ATO must also address the compliance costs associated with transfer pricing now - not in five years' time.
In response to the Inspector-General of Taxations (IGT’s) recommendation that the ATO look into the rules around international dealings schedules (IDS), the ATO has said it anticipates an effective review could only occur "three to five years after the introduction of the IDS".
Mr Sakell said the current compliance burden associated with IDS’s is unfair, particularly on small to medium-sized businesses.
“For some of our clients that have a lot of international dealings, the time and effort to complete the international dealing schedule can be even greater than the time and effort in completing the general tax return,” he said.
“What we are looking for is a more immediate reaction from the ATO,” Mr Sakell added.
To address the issue, Pitcher Partners has called for carve out and safe harbour provisions to excuse more businesses from completing a mandatory IDS.
Mr Sakell said he would like to see a more meaningful threshold in relation to total international transactions in order to reduce the amount of SMEs that are required to complete an IDS.
“At the moment it's $2 million and it’s just far too low.
“We quite like the model used in the UK, which looks at the size of the group in terms of assets and turnover. In the UK they have a pretty high threshold so that a lot of middle-market taxpayers don’t have to go through the detailed process of transfer pricing documentation,” he said.
Safe harbour provisions for typical types of transactions should also be implemented, according to Mr Sakell.
“It could be the provision for back office services or loans up to a certain dollar limited - those types of things where if the total size of the taxpayer is below a certain threshold then they are able to use certain safe harbour benchmarks,” Mr Sakell said.
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