About the 2025 Transfer Pricing Forum

The 2025 Transfer Pricing Forum is an annual publication that brings together leading experts from around the world to compare how different countries address transfer pricing and customs challenges, especially in light of new global tariffs. Its purpose is to provide practical, country-specific insights and real-world examples to help multinational businesses and advisors navigate complex international tax and trade rules.

For Australia, the Forum is an opportunity to share local experience and benchmark our approaches against global best practice. It highlights how Australian authorities manage transfer pricing and customs compliance, the importance of robust documentation, and the need for genuine commercial reasons behind any restructuring or pricing changes. By participating, Australia contributes to a global dialogue that supports more consistent and effective transfer pricing and customs strategies.

This article will present and discuss the Australian section of the 2025 Transfer Pricing Forum, drawing directly from the country-specific analysis and insights provided in the official publication. By focusing on the Australian perspective, the article aims to highlight how local practitioners and authorities are responding to recent global developments in transfer pricing, customs valuation, and tariffs, and to share practical guidance relevant to Australian businesses and advisors.

For a concise overview of the insights covered in this article, download the 2025 Transfer Pricing Forum Report – Australian Highlight below:

Question 1: ATO and ABF – Distinct Approaches to Transfer Pricing and Customs

In your jurisdiction, how do the tax and customs departments interact? Are they operating separately or collaborating, especially considering their potentially conflicting interests (e.g., higher import prices leading to higher import duties but lower local profits)?

In Australia, a contract manufacturing operation would in general not be perceived as high risk by the  Australian Taxation Office (ATO). However, where there is a mismatch between the functions performed, assets held, and/or risks assumed by the contract manufacturer and its contractual arrangement with its MNE group, then such misalignments will be perceived as high risk by the ATO. 

Our experience is that the ATO would likely require a risk review of new contract manufacturing operations created as a result of a restructuring event of an MNE’s supply chain. In particular, if such events lead to a change in the entity, such that it goes from being a full-fledged manufacturing operation to a contract manufacturer, this could be a red flag to the ATO regarding the migration of intellectual property (IP), profit erosion, etc. 

To safeguard against such risks, it is essential to perform a functional analysis of the operations, assets,  and risks of the value chain of the relevant entities involved. It is also highly recommended to document the commercial rationale for the restructuring event at the time of the event and support this motive with robust economic analysis, including applying arm’s length comparable benchmarks.  

Question 2: Comparing Transfer Pricing and Customs Valuation Methods

Please explain the interaction between transfer pricing methods (e.g., as outlined in the OECD Transfer Pricing Guidelines) and customs valuation methods (e.g., as described in the WTO Valuation Agreement) in your jurisdiction.

The valuation system and methods of the ABF are based on the World Trade Organization (WTO) Valuation Agreement, the system used by major trading nations throughout the world.1 The primary valuation method used by the ABF is the transaction value method, which is the price theimporter actually paid (or will pay) for the goods. Several conditions must be met before the transactionvalue method can be used, including the buyer and seller not being related.

If the transaction value method cannot be used, one of the following alternative methods is used to determine the customs value:

• Deductive Value: The price in a sale in Australia of the imported goods, identical goods, or similar goods. This price must be adjusted for costs, etc. incurred between the “place of export” and the sale in Australia.
  
• Computed Value: This is based on the price of producing the goods, general expenses, other costs, and profits relating to the imported goods.
  
• Fall-back Value: Where no other methods are suitable, the ABF will determine the transaction value by taking into account the above valuation methods and any other relevant information.

All methods applied by the ABF are predominantly focused on direct price comparison of identical or similar products, whereas the transfer pricing regime in Australia (similar to the OECD Guidelines) apply the typical five transfer pricing methods to find comparable arm’s length considerations. There is no hierarchy of transfer pricing methods, but the one most appropriate for the actual commercial and financial relations of the international related party dealings in question should be selected.

While this seems like two divided application approaches to the valuation and justification of price changes, there is an understanding between the ABF and the ATO in the event of year-end adjustments. This interaction occurs when the importation price is adjusted to ensure that the business’s profitability is within a set arm’s length range.

In practice, this interaction occurs through the voluntary disclosure process. The taxpayer will justify the price change to the ABF by providing appropriate transfer pricing documentation supporting that the importation price has changed due to the requirements of the arm’s length profitability range. Typically, the transfer pricing method used is a Transaction Net Margin Method establishing a range of comparable independent operating profit margins.

To reiterate, it is highly recommended for companies using year-end adjustment to ensure that their profit margins are within the arm’s length range and have contemporaneous, Australian-appropriate transfer pricing documentation in place. They should also disclose the price adjustments to the ABF through a voluntary disclosure or valuation advice.

Question 3: Anti-Avoidance Rules and Supply Chain Restructuring

From a supply chain perspective, MNEs may consider implementing restructuring strategies to mitigate the impact of higher customs duties. Transfer pricing strategies employed by MNES may include lowering operating margin levels for limited risk distributors, or converting contract manufacturers into toll manufacturers, for example.

How would general anti-abuse provisions in your jurisdiction address such strategies, assuming the behavior of parties aligns with economic reality and thenew or modified contractual agreements?

Part IVA of the Income Tax Assessment Act 1936 is Australia’s principal anti-avoidance provision. It empowers the ATO to cancel tax benefits obtained through schemes that are primarily designed to avoid tax. It is a broad-based provision that was originally designed to capture arrangements which were blatant, artificial, or contrived, but can also capture arrangements that could have been structured in a more straightforward or commercial way. There is published guidance from the ATO on their approach to this provision, as well as recent case law on its application to cross-border arrangements).

A simple example of a company exploring price change strategies might be an Australian-based entity selling products into the U.S. and seeking to reduce costs due to the impact of tariffs. The key transfer pricing measure is typically the arm’s length benchmarked operating margin. If, in this example, it was originally 3% it should now be reduced to 2% to account for changes to the U.S. business to absorb the cost instead of the customer.

The critical consideration for the ATO is that the changed pricing or activity is not being undertaken to avoid tax or that it would result in a mismatch between substance and form. It is critical for a business to demonstrate that the restructuring or adjustment is for business needs and driven by commercial reasons which are not unnecessarily complex. There will likely be the need to redo transfer pricing analysis of the business economics already in place to support and justify the new situation. Again, the authors recommend that businesses work with an advisor to consider the appropriate action, including
considering the Australian restructuring provisions, to ensure the new transfer pricing position is safeguarded.

Question 4: Customs Treatment of Year-End Transfer Pricing Adjustments

How are customs authorities in your jurisdiction responding to transfer pricing year-end adjustments? What are the specific requirements and procedures for decreasing customs duties following a year-end adjustment?

As noted above, year-end adjustments are allowed in Australia, if appropriately managed. The ABF manages any adjustments to customs duty amounts slightly differently to the ATO. It tends to approach them more procedurally and is concerned with understanding the change and its ultimate impact on the duty value. There will still be a need to appropriately document the arm’s length values as noted above, to ensure that the same detail can be used to explain any adjustments to meet the Australian Transfer Pricing Rules. Similarly, when this occurs regularly, the company may wish to consider engaging with the ATO to agree to an APA to help manage these types of adjustments in a more timely
and efficient manner.

In the authors’ experience, MNEs are increasingly looking into prospective transfer pricing adjustments to manage supply chains appropriately and mitigate customs valuation challenges on account of retrospective transfer pricing adjustments. If an MNE utilizes prospective transfer pricing adjustments, it should actively monitor the profitability of the importing entity. If the profitability is not in line with the benchmark, it should adjust the price of the imported goods within the year. The aim is to avoid retrospective transfer pricing adjustments at the end of the year, or at least to reduce the quantum of the adjustment.

Summary

In summary, this article has outlined how Australia addresses the challenges of transfer pricing and customs in a changing global environment. By focusing on strong documentation, voluntary disclosure, and commercially driven strategies, Australian businesses can better manage compliance and risk.

The insights from the 2025 Transfer Pricing Forum reinforce the importance of aligning tax and customs approaches and staying proactive as international rules and trade conditions continue to evolve.

Contributors

Benedicte Olrik: Managing Director of Transfer Pricing

Contact: Benedicte.Olrik@au.Andersen.com

Callen Dendle: National Tax Director of of Corporate Tax

Contact: Callen.Dendle@au.Andersen.com

Reproduced with permission from Transfer Pricing Forum, 14 TPTPFU 1, 10/15/24. Copyright © 2025 by Bloomberg Industry Group, Inc. (800-372-1033) http://www.bloombergindustry.com