Transfer Pricing 2025

Definitive global law guides offering comparative analysis from top-ranked lawyers

CHAMBERS GLOBAL PRACTICE GUIDES

Definitive global law guides offering comparative analysis from top-ranked lawyers

Contributing Editors Paolo Ludovici, Marlinda Gianfrate and Luca Tortorella Gatti Pavesi Bianchi Ludovici

Global Practice Guides

Transfer Pricing

Contributing Editors Paolo Ludovici, Marlinda Gianfrate and Luca Tortorella

Gatti Pavesi Bianchi Ludovici

2025

Chambers Global Practice Guides For more than 20 years, Chambers Global Guides have ranked lawyers and law firms across the world. Chambers now offer clients a new series of Global Practice Guides, which contain practical guidance on doing legal business in key jurisdictions. We use our knowledge of the world’s best lawyers to select leading law firms in each jurisdiction to write the ‘Law & Practice’ sections. In addition, the ‘Trends & Developments’ sections analyse trends and developments in local legal markets. Disclaimer: The information in this guide is provided for general reference only, not as specific legal advice. Views expressed by the authors are not necessarily the views of the law firms in which they practise. For specific legal advice, a lawyer should be consulted. Content Management Director Claire Oxborrow Content Manager Jonathan Mendelowitz Senior Content Reviewers Sally McGonigal, Ethne Withers, Deborah Sinclair and Stephen Dinkeldein Content Reviewers Vivienne Button, Lawrence Garrett, Sean Marshall, Marianne Page, Heather Palomino and Adrian Ciechacki Content Coordination Manager Nancy Laidler Senior Content Coordinators Carla Cagnina and Delicia Tasinda Content Coordinator Hannah Leinmüller Head of Production Jasper John Production Coordinator Genevieve Sibayan

Published by Chambers and Partners 165 Fleet Street London EC4A 2AE Tel +44 20 7606 8844 Fax +44 20 7831 5662 Web www.chambers.com

Contents

INTRODUCTION Contributed by Paolo Ludovici, Marlinda Gianfrate, Luca Tortorella and Angelica Masciulli, Gatti Pavesi Bianchi Ludovici p.5 AUSTRALIA Law and Practice p.12 Contributed by King & Wood Mallesons Trends and Developments p.22 Contributed by King & Wood Mallesons AUSTRIA Law and Practice p.27 Contributed by Grant Thornton Austria Trends and Developments p.43 Contributed by Grant Thornton Austria BELGIUM Law and Practice p.50 Contributed by Loyens & Loeff Trends and Developments p.74 Contributed by Loyens & Loeff BRAZIL Law and Practice p.82 Contributed by William Freire Advogados Trends and Developments p.108 Contributed by Machado Meyer Advogados

INDIA Law and Practice p.165 Contributed by AZB & Partners Trends and Developments p.188 Contributed by BMR Legal

ITALY Law and Practice p.198

Contributed by Maisto e Associati Trends and Developments p.222 Contributed by Gatti Pavesi Bianchi Ludovici

LUXEMBOURG Law and Practice p.230

Contributed by ATOZ Tax Advisers Trends and Developments p.250 Contributed by Loyens & Loeff NETHERLANDS Law and Practice p.259 Contributed by Borgen Tax Trends and Developments p.279 Contributed by Loyens & Loeff

PERU Law and Practice p.289 Contributed by +Value SOUTH KOREA Law and Practice p.309 Contributed by Lee & Ko

CYPRUS Law and Practice p.117 Contributed by Kinanis LLC Trends and Developments p.131 Contributed by Kinanis LLC

Trends and Developments p.333 Contributed by Yoon & Yang LLC SWITZERLAND Law and Practice p.340 Contributed by Tax Partner AG Trends and Developments p.365 Contributed by Tax Partner AG

FRANCE Law and Practice p.137

Contributed by Baker McKenzie Trends and Developments p.159 Contributed by Baker McKenzie

CHAMBERS.COM

Contents

USA Law and Practice p.371

Contributed by White & Case LLP Trends and Developments p.386 Contributed by White & Case LLP

ZAMBIA Law and Practice p.395 Contributed by Mulenga Mundashi Legal Practitioners Trends and Developments p.411 Contributed by Mulenga Mundashi Legal Practitioners

CHAMBERS.COM

INTRODUCTION

Contributed by: Paolo Ludovici, Marlinda Gianfrate, Luca Tortorella and Angelica Masciulli, Gatti Pavesi Bianchi Ludovici

Gatti Pavesi Bianchi Ludovici is a full-service independent law and tax firm with 200 profes - sionals that has offices in Milan, Rome and London. The firm provides expert guidance and assistance to national and international clients and institutions across all areas of civil, com - mercial and corporate law, as well as in all the fields of domestic and international taxation. With a fully dedicated team, GPBL provides comprehensive support to multinational groups across all areas of transfer pricing, including the definition of transfer pricing policies, optimisa - tion of supply chain models, cross-border re -

structurings, negotiation of unilateral/bilateral/ multilateral APAs with authorities and drafting of compliance documentation. The team is in - volved in complex transfer pricing litigation and joint audits, also offering support in pre-litiga - tion settlement procedures and MAP. The firm also assists with the International Compliance Assurance Programme (ICAP). By capitalising on strong professional relationships with top- tier firms worldwide, GPBL supports clients ef - fectively across multiple regions and seamlessly co-ordinates multi-jurisdictional teams.

Contributing Editors

Paolo Ludovici has been a partner of Gatti Pavesi Bianchi Ludovici since 2021 following its merger with L&P, which he founded in 2014. Previously, he worked for 23 years at Maisto e

Marlinda Gianfrate has been an of counsel at Gatti Pavesi Bianchi Ludovici since 2022 and is involved in various projects concerning international tax issues. With an economics

Associati, becoming a partner in 2000. Paolo’s expertise includes domestic and international corporate reorganisations, M&A and structured finance transactions, and tax planning for HNWI and trusts. Admitted to the Chartered Accountants Association in Milan, he is vice president of the Tax & Legal & Compliance Commission at AIPB and a member of the Tax Commission at AIFI, Invest Europe and the technical committee for implementing personal income tax reform set up by the Ministry of Economy and Finance in 2023.

background, she deals with international taxation, with a focus on transfer pricing, APAs, MAPs and co-operative compliance programmes. Marlinda worked for the Italian tax administration for 17 years, most recently holding the position of head of the Advance Agreements Office of the Revenue Agency. She was also assigned to represent Italy at the OECD’s CFA Working Party No 6 (on the taxation of multinational enterprises), contributing to work related to the BEPS Project, the update of the OECD TP Guidelines and the two-pillar solution.

CHAMBERS.COM

INTRODUCTION Contributed by: Paolo Ludovici, Marlinda Gianfrate, Luca Tortorella and Angelica Masciulli, Gatti Pavesi Bianchi Ludovici

Luca Tortorella has been working at Gatti Pavesi Bianchi Ludovici since 2021. He has more than 15 years of experience in the transfer pricing and international tax arena. Luca

Co-Author

Angelica Masciulli has been working with Gatti Pavesi Bianchi Ludovici since 2021, focusing on transfer pricing and international taxation. She advises leading multinational groups in the industrial and financial sectors on documentation matters, as well as pre- litigation and APA settlement procedures with tax authorities. Before joining Gatti Pavesi Bianchi Ludovici, Angelica worked at an international tax and law firm as a transfer pricing specialist, assisting financial and industrial clients. She graduated cum laude in Economics and Business Law in 2017 and holds a Master’s degree in tax law. She is a member of the Association of Chartered Accountants.

gained significant experience with major multinational entities in cross-border business restructurings and the negotiation of APAs, and with the Italian patent box regime. He also assists multinationals with transfer pricing and deemed permanent establishment controversies, and in international procedures aimed at eliminating double taxation. Previously, Luca worked for international tax and law firms and spent two years as transfer pricing manager in the London office of a pharmaceutical multinational. He graduated in Business Administration and was admitted to the Chartered Accountants Association (Milan).

Gatti Pavesi Bianchi Ludovici Piazza Borromeo 8 20123 Milano Italy

Tel: +39 02 859751 Fax: +39 02 809447 Email: studio@gpblex.it Web: www.gpblex.it

CHAMBERS.COM

INTRODUCTION Contributed by: Paolo Ludovici, Marlinda Gianfrate, Luca Tortorella and Angelica Masciulli, Gatti Pavesi Bianchi Ludovici

Global Overview of Transfer Pricing in 2025 International organisations and institutions have continued their efforts to standardise, harmonise and simplify transfer pricing principles and com - pliance. These developments have been seen in individual jurisdictions around the world. In general terms, however, the recent trade policy of the new US administration – with the introduc - tion of new tariffs on a case-by-case basis – is expected to have significant effects on global value chains and transfer pricing policies. This is in addition to the decision to withdraw from the Two-Pillar solution addressing tax chal - lenges (see below for more details). As a result, the coming year is expected to bring substantial changes in transfer pricing, requiring businesses to stay vigilant and adapt accordingly. OECD Level The implementation of the Two-Pillar solution, the OECD/G20 project to address tax issues related to the globalisation of the digital econ - omy, has implications for how multinational groups apply transfer pricing rules. Although some aspects of both Pillars may reduce the importance of the arm’s length prin - ciple (Pillar One, Amount A), other components (Pillar One, Amount B) increase the importance of the arm’s length standard. The OECD global agreement on the taxation of multinational enterprises (MNEs) was signed in October 2021 after years of negotiations by all members of the Inclusive Framework (currently 145 jurisdictions), and Pillar Two has already been implemented in several countries world - wide (where South Korea was the first country to sign the global minimum tax rules into law) and within the EU. It provided for a minimum 15% tax rate for large international corporations (Pil - lar Two) and a profit reallocation mechanism for

the most profitable companies, especially digital giants (Pillar One), to ensure that the allocation of taxing rights by countries where customers are located to part of the business profits of large MNEs no longer requires physical presence in a jurisdiction. However, this fundamental inter - national tax reform has been undermined by the recent decision to reject the “global tax deal” (the OECD global agreement on the taxation of MNEs) by the United States. With the White House memorandum of 20 January 2025, Pres - ident Trump announced the withdrawal of the United States from the global tax deal. Although the USA helped shape Pillar Two, it never ratified it. The new document signed by President Trump goes a step further: it declares null and void the commitments made by the pre - vious United States administration and orders the Secretary of the Treasury to “investigate whether any foreign countries are not in compli - ance with any tax treaty with the United States or have any tax rules in place, or are likely to put tax rules in place, that are extraterritorial or disproportionately affect American companies”. The US executive orders may also affect the adoption of the simplified and streamlined approach under Pillar One Amount B. Amount B simplifies the application of transfer pricing for baseline marketing and distribution activi - ties. The final report recommends a streamlined approach for applying the most appropriate transfer pricing method to identify a fixed return to remunerate in-scope transactions involving baseline marketing distributors, such as whole - salers, sales agents and commissionaires for certain marketing and distribution activities. The report was incorporated into the OECD’s Trans - fer Pricing Guidelines for Multinational Enterpris - es and Tax Administrations (the “Transfer Pric - ing Guidelines”), and jurisdictions are deciding

CHAMBERS.COM

INTRODUCTION Contributed by: Paolo Ludovici, Marlinda Gianfrate, Luca Tortorella and Angelica Masciulli, Gatti Pavesi Bianchi Ludovici

whether to introduce the simplified approach in their tax systems starting from fiscal years com - mencing on or after 1 January 2025. Amount B can be implemented by jurisdictions according to two options: they can allow tax - payers to voluntarily adopt the simplified and streamlined approach (a safe harbour), or they can mandate its use for in-scope transactions. Currently, only a few countries (eg, the Nether - lands) have implemented Amount B into their domestic legislation, while the United States published a proposal for public consultation to incorporate the simplified and streamlined approach as an optional safe harbour, with the future possibility of making it mandatory for in- scope taxpayers. As a consequence, any outcome deriving from the application of the simplified and stream - lined approach is not (always) certain and can - not (always) be considered reliable for the pur - poses of a mutual agreement procedure (MAP), as amount B works on a level playing field only when all jurisdictions have applied the approach. The choice made by the Inclusive Framework in favour of a unilateral and elective approach seems to limit the effectiveness of the elimina - tion of double taxation. Given the current status, Amount B seems to be only partially effective, and the only tool at the taxpayer’s disposal to achieve tax certainty remains the bilateral and multilateral advanced pricing arrangements (APAs), which – albeit only for ongoing proce - dures and new applications – prevent double taxation even with application of the simplified approach. United Nations Level The Subcommittee on Transfer Pricing estab - lished by the United Nations Committee of

Experts on International Cooperation in Tax Mat - ters has been completing its mandate of devel - oping guidance in six workstreams: • transfer pricing during the COVID-19 eco - nomic downturn; • transfer pricing compliance assurance; • transfer pricing of carbon offsets and credits; • industry/sector guidance for agricultural products; • industry/sector guidance for the pharmaceuti - cal industry; and • dispute avoidance and resolution. The note - worthy guidance released addresses practi - cal challenges that developing countries are facing in the area of transfer pricing. Subcommittee participants have already identi - fied some elements for future workstreams on transfer pricing (intangibles and intragroup ser - vices) to be proposed to the next membership of the Committee. EU Level The most relevant initiatives at the EU level relate to the proposal for a Council Directive on transfer pricing and the implementation of the so-called public Country-by-Country Reporting (CbCR) Directive. Proposal for a Council Directive on transfer pricing In September 2023, the European Commission published a proposal to harmonise key trans - fer pricing rules of member states and ensure a common approach to the arm’s length’s principle within the EU. The proposed directive suggests alignment with the latest OECD guidelines and acknowledges the possibility that future guide - lines may be issued by the UN.

CHAMBERS.COM

INTRODUCTION Contributed by: Paolo Ludovici, Marlinda Gianfrate, Luca Tortorella and Angelica Masciulli, Gatti Pavesi Bianchi Ludovici

The implementation date of the proposal is 1 January 2026. The European Parliament adopt - ed its non-binding report in April 2024. Within the European Council, where unanimity is required for the adoption of the proposal, techni - cal examination thereof is on-going, but several member states have concerns about the pos - sibility of losing the flexibility they currently have in applying the OECD’s Transfer Pricing Guide - lines, and this legislative proposal is not gather - ing sufficient support from member states. The majority of member states see no possibility of further progress on the basis of the current form of the Commission’s proposal. Neverthe - less, a few member states hold the view that technical discussions should continue in order to determine if there are any relevant procedural aspects related to the transfer pricing rules (see the December 2024 report of the Economic and Financial Affairs Council (ECOFIN) to the Euro - pean Council on tax issues). Public CbCR Directive The EU has long been at the forefront of advanc - ing corporate tax transparency. Member states have transposed into their domestic legisla - tion the Amending Directive to the Accounting Directive (2013/34) concerning the disclosure of income tax information by certain undertakings and branches (Directive 2021/2101), also known as the Public CbCR Directive. At the end of 2024, the European Commission published the implementing regulation providing the common template and electronic reporting formats for applying the public CbCR Directive. The Directive requires MNE groups to publish a report on income tax information, aiming to enhance transparency and allow public scrutiny of income tax data. This transparency enables debate on the contribution of MNEs in each EU

member state through the taxes they pay. The framework of Directive 2013/34 is mandatory for MNEs operating in the EU, provided they exceed a size threshold. The Public CbCR Directive expanded this scope to include branches estab - lished in a member state by companies based outside the EU. MNE groups with consolidated revenue exceeding EUR750 million, and stan - dalone undertakings with a taxable presence in at least two member states, must disclose CbCR data for operations within the EU, including in “non-cooperative jurisdictions”. The rules apply from the commencement of the first financial year starting on or after 22 June 2024. The report must include corporate and financial information, such as company activities, a list of subsidiaries consolidated in the financial state - ments, number of employees, revenue, profits or losses and key income tax data, including taxes accrued and paid. This information will be published in national company registers for accessibility. Companies must also publish this information on their websites. It is worth mentioning that outside Europe, a public CbCR regime has been implemented by Australia, applying to reporting periods starting 1 July 2024. Tax Certainty and the Transfer Pricing Framework: Global Statistics for MAPs and APAs On 15 November 2024, the OECD released its annual statistics on MAPs, including for the first time data on bilateral and multilateral APAs for 2023. These statistics monitor the implementa - tion of Action 14 of the G20/OECD BEPS Pro - ject, which aims to verify the effectiveness of international tax dispute resolution mechanisms. The data covers 120 jurisdictions, providing a nearly complete representation of MAP cases

CHAMBERS.COM

INTRODUCTION Contributed by: Paolo Ludovici, Marlinda Gianfrate, Luca Tortorella and Angelica Masciulli, Gatti Pavesi Bianchi Ludovici

worldwide. The APA statistics, derived from 46 jurisdictions, represent additional efforts under Action 14. The global average MAP case closure time is 27.3 months (32 months for transfer pricing cas - es and 23 months for other cases). Trends show a slight decrease in open cases and a significant increase in closed cases. The success rate for agreements concluded is 74%. In the absence of an arbitration clause, competent authorities are required to make efforts to eliminate double taxation, though there is no specific obligation concerning the results. As of 2020, there has been: • a decrease in the number of ongoing disputes due to internal improvements in tax adminis - tration efficiency; • a decrease in cases filed by taxpayers, likely due to a slowdown in tax audits during the pandemic; and • an increase in procedures filed for non-trans - fer pricing cases, although transfer pricing cases remain predominant. While fewer jurisdictions report bilateral and multilateral APAs, the data’s representativeness is still strong. The success rate for agreements is 25%, with an average closure time of 36.8 months. Bilateral APAs show increased effi - ciency and usage but remain time-intensive, making them more suitable for complex, high- value cases. The rise of co-operative compli - ance programmes and the OECD’s enhanced International Compliance Assurance Programme (ICAP) highlight the importance of adhering to the Transfer Pricing Guidelines. However, participation in co-operative compli - ance programmes does not eliminate the risk

of tax disputes in other jurisdictions involved in the same intercompany transactions. Transfer pricing, involving multiple jurisdictions, requires a strategic evaluation of tools to manage the risks of double taxation, as no single mechanism guarantees complete tax certainty. Compliance With Transfer Pricing Rules: Relevance for Single States and Taxpayers Beyond the strategic tools of co-operative com - pliance mentioned above, adherence to trans - fer pricing rules remains a key priority for both states and taxpayers. For example, the Internal Revenue Service (IRS) in the United States has strengthened transfer pricing enforcement, driven by organisational changes and recent success in high-profile cases. Increased enforcement efforts aim to sustain this trend, including greater use of 20% and 40% penalties. The year 2024 was pivotal for transfer pricing following the US Supreme Court’s Loper Bright decision, which overturned the Chevron doctrine. Before this ruling, courts typically deferred to federal agencies’ interpre - tations of unclear statutes, granting consider - able weight to Treasury Regulations under Sec - tion 482 of the US Internal Revenue Code. The Loper Bright decision now requires courts to independently interpret statutes without auto - matically deferring to agency regulations. This shift is already influencing tax cases, with courts scrutinising IRS rules more closely. The French government has recently reinforced its approach to transfer pricing dispute resolution and prevention. The 2024 Finance Bill strength - ened the powers of the tax authorities and led to a significant increase in dedicated resources. Moreover, in early 2025 draft guidelines on MAPs and APAs were released for public consultation.

CHAMBERS.COM

INTRODUCTION Contributed by: Paolo Ludovici, Marlinda Gianfrate, Luca Tortorella and Angelica Masciulli, Gatti Pavesi Bianchi Ludovici

The Swiss Federal Tax Administration published a Q&A list to clarify its domestic transfer pricing rules, aiming to offer maximum guidance to tax - payers. At the same time, non-compliance with transfer pricing rules might have criminal impli - cations for employees and tax advisors accord - ing to recent case law. Among compliance requirements, transfer pric - ing documentation plays a crucial role in mitigat - ing potential penalties during tax audits. In this regard, Belgium in 2024, and Austria in 2025, implemented or revised transfer pricing docu - mentation rules for in-scope corporate taxpay - ers, introducing significant changes for multina - tionals. Denmark has proposed updates to its transfer pricing documentation rules by raising financial thresholds for documentation require - ments. Companies with controlled transactions below DKK5 million and intercompany balances under DKK50 million may be exempt, along with certain equity-related transactions. However, documentation remains mandatory for dealings involving intangible assets or noncooperative jurisdictions outside the EU/European Economic Area (EEA). Similarly, Cyprus updated its laws to align with OECD transfer pricing standards.

Australia also continues to integrate OECD guidelines into its domestic legislation. Finally, although Italy has recently revised the penalties regime (also applicable to transfer pricing chal - lenges), reducing the percentage of administra - tive penalties from 90% to 70% of additional taxes due in case of an audit, transfer pricing documentation in Italy remains essential to miti - gate both potential cash outflows and criminal ramification when multinationals are subject to tax assessments. Therefore, the adequacy of documentation remains a focal point of disputes. Finally, it is worth mentioning that the local trans - fer pricing framework in Brazil recently under - went significant reform, aligning with OECD guidelines and introducing the arm’s length principle into the local rules, which apply to a broad scope of controlled transactions, includ - ing cost-sharing agreements (CSAs), which were previously not explicitly covered. CSAs now face scrutiny under transfer pricing rules, but con - troversy remains regarding their classification as services and potential impacts on other taxes. The practical application of these new rules and their interpretation by tax authorities is yet to be fully tested.

CHAMBERS.COM

AUSTRALIA

Australia

Law and Practice Contributed by: Michael Clough, Jerome Tse, Judith Taylor and Scott Heezen King & Wood Mallesons

Sydney

Tasmania

Contents 1. Rules Governing Transfer Pricing p.16 1.1 Statutes and Regulations p.16

1.2 Current Regime and Recent Changes p.16 2. Definition of Control/Related Parties p.16 2.1 Application of Transfer Pricing Rules p.16 3. Methods and Method Selection and Application p.16 3.1 Transfer Pricing Methods p.16 3.2 Unspecified Methods p.17 3.3 Hierarchy of Methods p.17 3.4 Ranges and Statistical Measures p.17 3.5 Comparability Adjustments p.17 4. Intangibles p.17 4.1 Notable Rules p.17 4.2 Hard-to-Value Intangibles p.17 4.3 Cost Sharing/Cost Contribution Arrangements p.17 5. Adjustments p.17

5.1 Upward Transfer Pricing Adjustments p.17 5.2 Secondary Transfer Pricing Adjustments p.17 6. Cross-Border Information Sharing p.18 6.1 Sharing Taxpayer Information p.18 6.2 Joint Audits p.18 7. Advance Pricing Agreements (APAs) p.18 7.1 Programmes Allowing for Rulings Regarding Transfer Pricing p.18 7.2 Administration of Programmes p.18 7.3 Co-Ordination Between the APA Process and Mutual Agreement Procedures p.18 7.4 Limits on Taxpayers/Transactions Eligible for an APA p.18 7.5 APA Application Deadlines p.18 7.6 APA User Fees p.18 7.7 Duration of APA Cover p.18 7.8 Retroactive Effect for APAs p.18

CHAMBERS.COM

AUSTRALIA CONTENTS

8. Penalties and Documentation p.18 8.1 Transfer Pricing Penalties and Defences p.18 8.2 Transfer Pricing Documentation p.19 9. Alignment With OECD Transfer Pricing Guidelines p.19 9.1 Alignment and Differences p.19 9.2 Arm’s Length Principle p.19 9.3 Impact of the Base Erosion and Profit Shifting (BEPS) Project p.19 9.4 Impact of BEPS 2.0 p.19 9.5 Entities Bearing the Risk of Another Entity’s Operations p.19 10. Relevance of the United Nations Practical Manual on Transfer Pricing p.19 10.1 Impact of UN Practical Manual on Transfer Pricing p.19 11. Safe Harbours or Other Unique Rules p.19 11.1 Transfer Pricing Safe Harbours p.19 11.2 Rules on Savings Arising From Operating in the Jurisdiction p.19 11.3 Unique Transfer Pricing Rules or Practices p.19 11.4 Financial Transactions p.19 12. Co-Ordination With Customs Valuation p.20 12.1 Co-Ordination Requirements Between Transfer Pricing and Customs Valuation p.20 13. Controversy Process p.20 13.1 Options and Requirements in Transfer Pricing Controversies p.20 14. Judicial Precedent p.20 14.1 Judicial Precedent on Transfer Pricing p.20 14.2 Significant Court Rulings p.20 15. Foreign Payment Restrictions p.21 15.1 Restrictions on Outbound Payments Relating to Uncontrolled Transactions p.21 15.2 Restrictions on Outbound Payments Relating to Controlled Transactions p.21 15.3 Effects of Other Countries’ Legal Restrictions p.21 16. Transparency and Confidentiality p.21 16.1 Publication of Information on APAs or Transfer Pricing Audit Outcomes p.21 16.2 Use of “Secret Comparables” p.21

CHAMBERS.COM

AUSTRALIA Law and Practice Contributed by: Michael Clough, Jerome Tse, Judith Taylor and Scott Heezen, King & Wood Mallesons

King & Wood Mallesons (KWM) is recognised as one of the world’s most innovative top-tier international law firms and offers access to a global platform, with a team of over 3,700 law - yers in 27 locations around the world. KWM Tax has the most experienced team in the Austral - ian legal services market, with the strength of 14 tax partners and over 60 team members. It has led seminal tax cases on anti-avoidance (BHP and RCI) and transfer pricing (Chevron and Glencore), and key cases on State taxes

(Bupa, Vicinity). The tax disputes team acts only for taxpayers in all tribunals and courts through - out Australia. KWM Tax advises multinationals on transfer pricing risks for transactions and structures, using experience gained in running leading Australian transfer pricing cases. It ad - vises and assists taxpayers with transactions and disputes involving global, regional and local transfer pricing laws; drafts transfer pricing poli - cies; and prepares transfer pricing documenta - tion for high-value and high-profile transactions.

Authors

Michael Clough is a partner in King & Wood Mallesons’ Melbourne office and recently its chairman in Australia. He specialises in tax issues that arise in international

Jerome Tse is a tax partner at King & Wood Mallesons specialising in transfer pricing, and tax controversy and litigation. Jerome regularly advises clients on all aspects of

transactions and structures. Chambers Global has recognised Michael’s “leading tax disputes practices with significant experience in the Supreme, Federal and High Courts acting for many of the largest corporations in Australia in high-profile cases” . He advises some of the largest global corporations and his work includes all aspects of tax audits and litigation such as negotiations and actions in relation to the collection of tax, access to premises, production of documents and tax appeals generally.

transfer pricing, including as part of global M&A transactions, in an advisory capacity and in tax disputes and litigation. This includes several matters involving the transfer pricing aspects of intangibles and IP migrations. He has also been involved in seminal Australian transfer pricing cases, including Chevron and Glencore, and presents transfer pricing papers internationally, including at the recent 2025 Canadian Tax Foundation conference and American Bar Association tax conferences.

CHAMBERS.COM

AUSTRALIA Law and Practice Contributed by: Michael Clough, Jerome Tse, Judith Taylor and Scott Heezen, King & Wood Mallesons

Judith Taylor is an income tax specialist at King & Wood Mallesons with over 20 years’ experience. Judith’s clients include domestic and foreign entities in the financial services,

Scott Heezen is a partner in King & Wood Mallesons’ Sydney office and a leading tax practitioner who specialises in infrastructure, property and funds transactions. He is both a qualified lawyer and a Chartered Accountant. Scott specialises in the tax elements of significant corporate transactions – whether significant for their size, complexity or market- leading effects. He has advised on major and headline-making deals in the funds, property and infrastructure areas, and is one of the leading advisers on innovative financing programmes for Australian banks and other institutions.

managed investment funds, property, mining, private equity, agribusiness, technology and health sectors. Judith is Deputy Chair of the Taxation Committee of the Law Council of Australia and Chair of the NSW Sub- committee. She regularly consults with Treasury and the ATO on areas of tax reform.

King & Wood Mallesons Level 61, Governor Phillip Tower 1 Farrer Place Sydney NSW 2000 Australia Tel: +61 2 9296 2000 Fax: +61 2 9296 3999 Email: syd@au.kwm.com Web: www.kwm.com/au/en/home

CHAMBERS.COM

AUSTRALIA Law and Practice Contributed by: Michael Clough, Jerome Tse, Judith Taylor and Scott Heezen, King & Wood Mallesons

1. Rules Governing Transfer Pricing 1.1 Statutes and Regulations Australia’s transfer pricing rules are contained in subdivisions 815-B, 815-C, and 815-D of the Income Tax Assessment Act 1997 and related evidentiary matters in subdivision 284-E of the Tax Administration Act 1953. When relevant, the equivalent rules in Australia’s double tax agree - ments will generally apply to the extent of any inconsistency with the domestic rules. 1.2 Current Regime and Recent Changes Australia’s first attempt at transfer pricing rules were contained in the Income Tax Assessment Act 1936. These were vague rules designed to reallocate profits but were largely ineffectual. Modern rules based on the OECD guidelines were enacted in May 1981 as Division 13 of that Act. Those rules adopted the concepts of arm’s length consideration which would be payable/ receivable by parties dealing with each other at arm’s length. Those rules were replaced in 2012 by Division 815 of the Income Tax Assessment Act 1997. Sub-division 815A was expressed to confirm that the transfer pricing rules contained in Australia’s tax treaties and incorporated into Australia’s domestic law would address treaty- related transfer pricing. The purpose of the rules was to limit taxable profits being shifted or misal - located offshore. Interestingly, these rules were made retrospective to 2004 to overcome per - ceived weaknesses in Division 13, even though subsequent cases suggest that perception was incorrect. Division 815 was updated in 2013, and the transfer pricing rules are now contained in Sub - divisions 815-B, 815-C and 815-D and related provisions in Subdivision 284-E of the Taxation Administration Act. Those amendments were made to improve the alignment between out -

comes achieved for international arrangements involving Australia and another jurisdiction irre - spective of whether the other country forms part of Australia’s tax treaty network. 2. Definition of Control/Related Parties 2.1 Application of Transfer Pricing Rules Australia’s transfer pricing rules will apply if the conditions operating between entities differ from arm’s length conditions – having regard to a number of factors such as the assets, risks and functions of each entity – and that difference results in a tax benefit. Technical legal control is not required. Independent parties can act on a non-arm’s length basis in relation to a transac - tion, usually where they act on a similar basis in relation 3. Methods and Method Selection and Application 3.1 Transfer Pricing Methods The legislation does not prescribe one method to use. This is an acknowledgement that each case depends on its facts and circumstances. Because the legislation is based on the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022 (the “OECD Guidelines” ), the models set out there and their applicability are the norm. In court, the favoured method is the comparable uncon - trolled price method, but this is usually difficult in practice. The transactional net margin method is often used when comparables are difficult to find.

CHAMBERS.COM

AUSTRALIA Law and Practice Contributed by: Michael Clough, Jerome Tse, Judith Taylor and Scott Heezen, King & Wood Mallesons

3.2 Unspecified Methods Transfer pricing methods that are not specified by law are allowed but the onus is on the tax - payer to demonstrate that the method is reliable. In practice, this is usually very difficult. 3.3 Hierarchy of Methods The methods and their hierarchy set out in the OECD Guidelines are normally used. 3.4 Ranges and Statistical Measures Ranges are common in evidence from experts, which reflects the subjectivity of some opinions. Courts usually prefer the midpoint of the appro - priate range. 3.5 Comparability Adjustments The transfer pricing provisions operate on an annual basis. At year end, a review should be conducted to determine if any adjustment is required. In the 2024–25 Federal Budget, the government announced the discontinuation of previously announced rules to deny, from 1 July 2023, tax deductions for payments made by those with annual global group turnover exceeding AUD1 billion) relating to intangible assets connected with low corporate tax jurisdictions. In its place, the government announced new measures to penalise, from 1 July 2026, significant global entities that are found to have mischaracterised or undervalued royalty payments, to which roy - alty withholding tax would otherwise apply – this has not yet been legislated, and there does not appear to be draft legislation currently before Parliament. 4. Intangibles 4.1 Notable Rules

Australia has rules on interest. These include lim - itations under onerous thin capitalisation rules and internal debt creation rules, and the more traditional transfer pricing rules (which can still apply over the top of those other limitations). 4.2 Hard-to-Value Intangibles The government is considering how to imple - ment Action 8 of the OECD’s Base Erosion and Profit Shifting (BEPS). The taxpayer always runs the risk of the Australian Taxation Office (ATO) using post-fact evidence if it is persuasive. The taxpayer should always document the basis for the price and related evidence at the time of the transaction. This follows from the rule that the taxpayer bears the onus of proof. 4.3 Cost Sharing/Cost Contribution Arrangements Cost sharing or contribution can be recognised but require adequate and reliable supporting evi - dence. In practice, the ATO has some internal guidance on certain types. 5. Adjustments 5.1 Upward Transfer Pricing Adjustments Voluntary disclosures of adjustments are permit - ted. They will lead to amended assessments if the taxpayer has supporting evidence and it is within the amendment period. 5.2 Secondary Transfer Pricing Adjustments Consequential adjustments are permitted where fair and reasonable.

CHAMBERS.COM

AUSTRALIA Law and Practice Contributed by: Michael Clough, Jerome Tse, Judith Taylor and Scott Heezen, King & Wood Mallesons

6. Cross-Border Information Sharing 6.1 Sharing Taxpayer Information

7.4 Limits on Taxpayers/Transactions Eligible for an APA The ATO has a list of transactions and conditions which would qualify and those which would not.

Australia has an extensive network of double tax agreements that include information sharing clauses. Australia is also a party to the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters. 6.2 Joint Audits The ATO regularly shares information with other countries’ revenue authorities and sometimes conduct joint investigations. Australia’s secrecy laws permit the ATO to share information under various treaties. 7. Advance Pricing Agreements (APAs) 7.1 Programmes Allowing for Rulings Regarding Transfer Pricing Australia will consider entering an APA which could be unilateral, bilateral or multilateral. 7.2 Administration of Programmes Australia’s competent authority (CA) administers the programme. The Commissioner of Taxation, who leads the ATO, or their delegate is the cur - rent CA. 7.3 Co-Ordination Between the APA Process and Mutual Agreement Procedures In Australia, the same unit of the ATO admin - isters both APAs and mutual agreement pro - cedures (MAPs). It would be likely that an APA would be pursued before a MAP. Practically, a failure to reach a bilateral APA would likely result in an unsuccessful MAP request.

They can be found in PS LA 2015/4. 7.5 APA Application Deadlines

There is no strict time limit for filing an APA appli - cation. Usually, the years covered by an APA will commence from the time of request. There are “roll back” provisions to apply the APA to an ear - lier year but this is by agreement only and not guaranteed. 7.6 APA User Fees There is no user fee for seeking an APA. 7.7 Duration of APA Cover Most APAs cover a period of three to five years. 7.8 Retroactive Effect for APAs An APA can be rolled back to prior years by agreement with the ATO depending on several factors including whether the APA was voluntar - ily requested in advance of any audit activity. 8. Penalties and Documentation 8.1 Transfer Pricing Penalties and Defences Transfer pricing adjustments attract significant penalties: up to 200% of the tax shortfall. Remis - sion (partial or otherwise) is available if adequate documentation of adoption of a reasonable methodology, with supporting material, is pro - vided. Failure to keep records and documenta - tion specifically required by the transfer pricing rules will result in no remission.

CHAMBERS.COM

AUSTRALIA Law and Practice Contributed by: Michael Clough, Jerome Tse, Judith Taylor and Scott Heezen, King & Wood Mallesons

10. Relevance of the United Nations Practical Manual on Transfer Pricing 10.1 Impact of UN Practical Manual on Transfer Pricing Australia’s transfer pricing rules are model almost entirely on the OECD model. 11. Safe Harbours or Other Unique Rules 11.1 Transfer Pricing Safe Harbours Safe harbour rules in the transfer pricing context would generally have to be negotiated with the ATO. 11.2 Rules on Savings Arising From Operating in the Jurisdiction There are no specific rules on this topic. 11.3 Unique Transfer Pricing Rules or Practices A notable rule is that the ATO generally opposes the payment of a market priced guarantee fee to a parent. 11.4 Financial Transactions Australia has aligned with the rules in Chapter X of the OECD Guidelines by adopting the most recently revised version of that guidance (Janu - ary 2022).

8.2 Transfer Pricing Documentation Australia has adopted transfer pricing documen - tation rules based on the structure contemplated by the OECD Guidelines – ie, a master file, a local file and a country-by-country report – as the basis for its legislated documentary require - ments. 9. Alignment With OECD Transfer Pricing Guidelines 9.1 Alignment and Differences Australia’s transfer pricing rules align closely with the OECD Guidelines. 9.2 Arm’s Length Principle Australia still uses the arm’s length principle as the basis of transfer pricing. 9.3 Impact of the Base Erosion and Profit Shifting (BEPS) Project Australia’s transfer pricing laws have been directly affected by the OECD project of which Australia is a keen supporter. 9.4 Impact of BEPS 2.0 Australia has adopted most of the Pillar One rec - ommendations. 9.5 Entities Bearing the Risk of Another Entity’s Operations It would be unusual to allow one entity to guar - antee another’s return. This would require evi - dence that it was normal industry practice (eg, some insurance groups) or specific justification by reference to the facts and circumstances.

CHAMBERS.COM

AUSTRALIA Law and Practice Contributed by: Michael Clough, Jerome Tse, Judith Taylor and Scott Heezen, King & Wood Mallesons

12. Co-Ordination With Customs Valuation 12.1 Co-Ordination Requirements Between Transfer Pricing and Customs Valuation If a transfer pricing adjustment is made in respect of dutiable goods, it is likely that a correspond - ing adjustment would be made to the value for customs. Retrospective adjustments to customs values are not automatic. 13. Controversy Process 13.1 Options and Requirements in Transfer Pricing Controversies A taxpayer dissatisfied with the ATO’s final deci - sion on a transfer pricing adjustment has the right to appeal. The appeal could go the Admin - istrative Review Tribunal, but almost invariably would go to the Federal Court which is a court of general jurisdiction. If the matter goes to the Tribunal, an appeal only lies on errors of law – the findings of fact are generally fixed. If the matter goes to the Federal Court, there is the right of appeal to a Full Court of the Federal Court. An appeal to the Full Court can be way of a rehear - ing subject to limitations that no further evidence is permitted without leave. An appeal from the Full Court is only available to Australia’s highest appellate court, the High Court, by special leave. 14. Judicial Precedent 14.1 Judicial Precedent on Transfer Pricing There are now three significant recent cases on transfer pricing (see 14.2 Significant Court Rul - ings ). Unfortunately, the analyses in those cases are somewhat at odds with each other. Accord -

ingly, the development of judicial principles is yet to be settled and may not be until the High Court hears a transfer pricing case. 14.2 Significant Court Rulings There are three recent Full Court of the Federal Court decisions on transfer pricing. Chevron v Commissioner of Taxation This case involved an intercompany cross-bor - der loan arising out of an internal restructure. The Court held that it is permissible under the transfer pricing rules for the Commissioner to reconstruct a term of the loan if independent parties would not have agreed to a loan on the actual terms. In that case the Court found that the Australian subsidiary was by it owns pro - jections expected to be unable to service the interest on the loan for some years (without divi - dends from a special purpose borrowing subsid - iary) and concluded that an independent lender would have insisted on a parent guarantee. The case was not appealed further by the taxpayer. Commissioner of Taxation v Glencore This case involved a transfer pricing adjustment to a commodities contract. The Court held that reconstruction of the pricing provisions would be permitted if independent parties would not have agreed to them. Glencore won because it produced sufficient evidence to prove that inde - pendent parties would agree to such terms. The Court decided that making more profits in Aus - tralia should not come at the expense of appro - priate market-based commercial prudence. The Commissioner was unsuccessful in seeking spe - cial leave to appeal to the High Court. Singtel v Commissioner of Taxation This was a case involving intercompany debt between an overseas parent and Australian sub - sidiary. The loan was subject to variations over

CHAMBERS.COM

AUSTRALIA Law and Practice Contributed by: Michael Clough, Jerome Tse, Judith Taylor and Scott Heezen, King & Wood Mallesons

several years, including interest deferral provi - sions. Although the dispute related to a period that stretched from 2009 to 2013 and involved earlier iterations of Australia’s transfer pricing rules, the principles discussed are likely to be relevant to the current rules. The Court held that the Commissioner was permitted under the transfer pricing rules to reconstruct those provi - sions of the loan to which independent lenders would not have agreed. Singtel was unsuccess - ful in seeking special leave to appeal to the High Court. The thread running through these cases is that the Commissioner is entitled to add, delete or vary a term of an agreement to achieve a reli - able counterfactual which can be priced. The challenge is to restrict the changes to the actual agreement so that the counterfactual is com - mercially realistic in all the circumstances. These circumstances include risk appetites, which can vary considerably between companies within the same industry. This is sometimes referred to as depersonalising the actual contract. The current Commissioner does not appear in his (Court) Decision Impact Statement to agree with this analysis. 15. Foreign Payment Restrictions 15.1 Restrictions on Outbound Payments Relating to Uncontrolled Transactions Australia has no general restrictions on the remittance of outbound payments. Payers have an obligation to withhold tax at the scheduled

rate from interest, dividends and royalties and a failure to withhold renders the payer liable. The Commissioner does have the power to garnish - ee monies if tax is owed by the recipient. 15.2 Restrictions on Outbound Payments Relating to Controlled Transactions See 15.1 Restrictions on Outbound Payments Relating to Uncontrolled Transactions . 15.3 Effects of Other Countries’ Legal Restrictions Australia will only enforce rules regarding other countries’ legal restrictions on foreign payments if this is covered by a bilateral agreement. 16. Transparency and Confidentiality 16.1 Publication of Information on APAs or Transfer Pricing Audit Outcomes Australia annually publishes the number of APAs issued and transfer pricing audits and the total tax involved. No further details are made public. 16.2 Use of “Secret Comparables” The ATO uses information about comparables that may not be generally known as a basis for its acceptance or refusal of a taxpayer’s position. Because taxpayers bear the onus of proving on the balance of probabilities that the Commis - sioner’s adjustment is not correct and that the taxpayer’s own position is correct, the Com - missioner will generally not need to divulge any comparable if they do not or cannot do so.

CHAMBERS.COM

AUSTRALIA Trends and Developments

Trends and Developments Contributed by: Michael Clough, Jerome Tse, Judith Taylor and Kai-Chen Lamb King & Wood Mallesons

Authors

Michael Clough is a partner in King & Wood Mallesons’ Melbourne office and recently its chairman in Australia. He specialises in tax issues that arise in international

Jerome Tse is a tax partner at King & Wood Mallesons specialising in transfer pricing, and tax controversy and litigation. Jerome regularly advises clients on all aspects of

CHAMBERS.COM

Page i Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44 Page 45 Page 46 Page 47 Page 48 Page 49 Page 50 Page 51 Page 52 Page 53 Page 54 Page 55 Page 56 Page 57 Page 58 Page 59 Page 60 Page 61 Page 62 Page 63 Page 64 Page 65 Page 66 Page 67 Page 68 Page 69 Page 70 Page 71 Page 72 Page 73 Page 74 Page 75 Page 76 Page 77 Page 78 Page 79 Page 80 Page 81 Page 82 Page 83 Page 84 Page 85 Page 86 Page 87 Page 88 Page 89 Page 90 Page 91 Page 92 Page 93 Page 94 Page 95 Page 96 Page 97 Page 98 Page 99 Page 100 Page 101 Page 102 Page 103 Page 104 Page 105 Page 106 Page 107 Page 108 Page 109 Page 110 Page 111 Page 112 Page 113 Page 114 Page 115 Page 116 Page 117 Page 118 Page 119 Page 120 Page 121 Page 122 Page 123 Page 124 Page 125 Page 126 Page 127 Page 128 Page 129 Page 130 Page 131 Page 132 Page 133 Page 134 Page 135 Page 136 Page 137 Page 138 Page 139 Page 140 Page 141 Page 142 Page 143 Page 144 Page 145 Page 146 Page 147 Page 148 Page 149 Page 150 Page 151 Page 152 Page 153 Page 154 Page 155 Page 156 Page 157 Page 158 Page 159 Page 160 Page 161 Page 162 Page 163 Page 164 Page 165 Page 166 Page 167 Page 168 Page 169 Page 170 Page 171 Page 172 Page 173 Page 174 Page 175 Page 176 Page 177 Page 178 Page 179 Page 180 Page 181 Page 182 Page 183 Page 184 Page 185 Page 186 Page 187 Page 188 Page 189 Page 190 Page 191 Page 192 Page 193 Page 194 Page 195 Page 196 Page 197 Page 198 Page 199