Simplified Transfer Pricing Record Keeping: 2023 Update

The Australian Taxation Office’s (ATO’s) ‘Simplifying Transfer Pricing Record Keeping’ (STPRK) options allow qualifying entities to opt-out of Australia’s full transfer pricing record-keeping requirements, which in turn benefit businesses by minimising the cost of record-keeping and compliance.

Before relying on STPRK, you must consider all relevant ATO criteria and definitions, and maintain documentation to prove your eligibility.  You can then disclose your eligibility and opt in to STPRK by notifying the ATO via your International Dealings Schedule (IDS) or Country-by-Country (CbC) Local File.

We have summarised the latest options and eligibility requirements below. If you have any questions or require assistance, please contact Accru Felsers. We assist many international businesses with their transfer pricing and have extensive experience in applying all the STPRK options below.

2023 Simplified Transfer Pricing Record-Keeping Options

The ATO’s Simplified Transfer Pricing Record-Keeping Guide, which has changed several times in the past few years, outlines seven options for STPRK.  These options reflect the types of transactions or activities the ATO identify as low risk for International Related-Party Dealings (IRPDs).  

These options apply to income years beginning on or after 1 July 2018 (or substituted accounting period) but taxpayers are still able to apply the options as they existed in the previous version for their first income year commencing on or after 1 July 2018 (or substituted accounting period).

2023 Eligibility Criteria

The ATO’s guide sets out the criteria for businesses to self-assess their eligibility for STPRK. The main change this year is to the interest rate limits for inbound and outbound loans.

The 2023 eligibility criteria are summarised below. Note that generally, businesses will not be eligible for any options if they have derived sustained losses or undergone a restructure within the year.

1. Small business taxpayers

Businesses with an annual turnover of their Australian economic group (group turnover) of under $50 million are able to opt in if their related-party dealings (RPDs) involving royalties, licence fees or research and development (R&D) arrangements do not exceed the combined threshold of $500,000, and their specified service RPDs are not more than 15% of their turnover. Additionally, they cannot be distributors.

2. Distributors

Distributors with a group turnover of not more than $50 million are able to opt in if their RPDs involving royalties, licence fees or research and development (R&D) arrangements do not exceed the combined threshold of $500,000, and their profit-before-tax to turnover ratio is not less than 3%.

3. Materiality

Companies with IRPDs of not more than 2.5% of their total group turnover and a total group turnover of not more than $100 million are eligible for this option if their RPDs involving royalties, licence fees or R&D arrangements do not exceed the combined threshold of $500,000.

*NOTE for businesses that are eligible for above options 1, 2 or 3, documentation requirements are not reduced for related-party royalties, licence fees and R&D arrangements, financial transactions and dealings of a capital nature.

4. Low Value Adding Intra-group services

Intra-group services up to $2 million are eligible, as are some above $2 million but note that for services you receive, the total amount charged must be no more than 15% of the total expenses; or for services you provide, the amount must be no more than 15% of the total revenue. The total expenses on these services cannot be more than 25% of your pre-intra group services profit. Additionally, the mark-ups on the services need to be at least 5% for those provided or at most 5% for those received.

5. Low-level inbound loans

Those with a combined cross-border loan balance of no more than $50 million for their Australian economic group throughout the financial year are able to opt in if the annual interest rate for each of their loans is not more than 5.65% in 2023 income year (or 1.83% in 2022 income year) and their funds provided under the loan and their associated expenses are denominated in Australian dollars.

6. Low-level outbound loans

Those with a combined cross-border loan balance of no more than $50 million for their Australian economic group throughout the financial year are able to opt in if the annual interest rate for each of their loans is not less than 5.65% in 2023 income year (or 1.83% in 2022 income year) and their funds provided under the loan and their associated expenses are denominated in Australian dollars.

7. Technical services

This option is available If the income from and expenditure on technical services is not more than 50% of the total IRPDs of the taxpayer’s Australian economic group, providing the mark-up for services received is not more than 10% and the mark up for services rendered is at least 10%.

*NOTE for businesses that are eligible for above options 4, 5,6 or 7, documentation requirements are not reduced for other IRPDs.

What does it mean if your business applies STPRK?

Whilst adopting an STPRK option does not waive your business from complying with transfer pricing rules, it does mean the ATO will generally not allocate compliance resources to examine the arrangement specified in that option, except for reviewing your eligibility on applying the STPRK option.

To learn more about Australia’s transfer pricing rules, see our article Australia’s transfer pricing requirements 2018.

If you have any questions or would like our assistance with your 2023 ‘Simplified Transfer Pricing Record Keeping’, please contact our transfer pricing specialists Glenda Nixon or Maggie Chang.