Advance Pricing Arrangements for SMEs

20 April 2011

The Australian Tax Office has issued a new practice statement regarding its administration of Advance Pricing Arrangements – in particular an improvement in the time it takes for an APA to be prepared and agreed between business owners and the ATO.

Who uses Advance Pricing Arrangements?

Due to their complexity and a 12 month processing window, Advance Pricing Arrangements have only been utilised by large business.

The ATO’s statement has announced a new approach designed to streamline the process for SMEs and ensure that an Advance Pricing Arrangements, can be finalised within nine months.

Whilst this time lag is still quite long, Advanced Pricing Arrangements provide a degree of certainty and reduce tax risks for SMEs who are conducting business offshore.

What does an Advance Pricing Arrangement do?

An Advance Pricing Arrangement acts as an agreement with the ATO on the ‘transfer price’ between businesses and international partners, in effect a private ruling that gives the taxpayer confidence that the transfer price and underlying margin is reasonable and will be accepted by the ATO.

The commitment to reducing the processing time is intended to alleviate the amount of compliance burden that inhibits SMEs using the APA.

Full details can be downloaded from the ATO website.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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