The ATO has updated Practice Statement PS LA 2015/4 to streamline and formalise improvements to its APA programme, clarifying expectations, revising entry criteria, enhancing transparency and governance, and refining how collateral issues are managed.
The Australian Taxation Office (ATO) updated Law Administration Practice Statement PS LA 2015/4 to reflect enhancements to its advance pricing arrangement (APA) programme. The changes incorporate recommendations from the ATO’s 2023 APA Programme Review and formalise the process improvements adopted since then.
The update streamlines the APA process by clarifying mutual expectations, revising entry criteria, enhancing transparency and governance, and adjusting how collateral issues are handled across different stages, benefiting ATO staff, advisers, and participating businesses.
What this Practice Statement is about
This Practice Statement sets out the Commissioner of Taxation’s practice and procedures and provides guidance to ATO staff in dealing with requests from taxpayers to enter into an advance pricing arrangement (APA).
While this Practice Statement deals primarily with APA requests covering cross-border dealings between separate entities, the principles in this Practice Statement also apply to requests for APAs involving the attribution of profits to permanent establishments.
An APA is entered into by:
- in the case of a unilateral APA, the ATO and the taxpayer
- in the case of a bilateral APA, the competent authority (CA) of the relevant tax administration and the ATO CA
- in the case of a multilateral APA, the CA of each of the relevant administrations and the ATO CA.
An APA deals with conditions operating between entities that satisfy the cross-border test in subsection 815-120(3) (cross-border dealings). The term of an APA will usually be between three and five years.
Context for entering into an advance pricing arrangement
Many Australian-based entities participate regularly in the ever-evolving dynamic market that is world trade. Multinational entities and cross-border dealings are critical to this global dynamic. As a necessary consequence, there has been an increasing focus and emphasis on transfer pricing and its impacts for revenue authorities. ATO recognises that taxpayers face transfer pricing risks internationally and domestically. In particular, Australian-based taxpayers face transfer pricing risks given Australia’s transfer pricing rules are self-executing as part of the self-assessment regime.
Charged with administering Australia’s tax system, ATO also faces risks posed by profit shifting and transfer pricing. By entering into APAs, they place an explicit emphasis on assuring Australia’s tax base by working with Australian taxpayers to ensure transfer pricing outcomes are reflective of the true economic contribution made by the Australian-based enterprise.
The ATO and most taxpayers will seek to manage and mitigate their respective transfer pricing risks. APAs provide an opportunity for all parties, on a prospective basis, to mutually manage and achieve certainty on transfer pricing risks. The APA should provide a pragmatic means to agree to an arm’s length outcome for the Australian entity and for ATO, having regard to the totality of the cross-border dealings between the entities involved, which is consistent with the transfer pricing legal framework.
