Master of Accounting: Taxation Law and Transfer Pricing Report

This report examines transfer pricing, a method of pricing transactions between different units of a common enterprise, particularly between a holding enterprise and its foreign subsidiary. It explains that transfer pricing should reflect prices between non-related parties to avoid tax discrepancies. The report discusses strategies and abuses in transfer pricing, including channeling profits to tax havens and understated pricing for tax minimization, as well as the role of the Australian Taxation Office in reviewing and auditing these practices. Furthermore, it provides the example of Google Australia's transfer pricing practices, highlighting the difference between taxes paid in Australia versus taxes paid in Singapore and the implications of these practices. The assignment fulfills the requirements of a taxation law report, including in-text referencing and a reference list using the Harvard style.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Author Note

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Question 1
Transfer pricing depicts a method of pricing of transactions that are occurring between
different units of a common enterprise. It is generally evident in transactions between an
enterprise and foreign subsidiary. In a situation, where a holding enterprise and the subsidiary
enterprise are entering into the transaction, the transfer pricing is required to be similar as that
of the pricing existing between two non-related parties. Any deviation from the same would
amount to a discrepancy in the tax imposition in Australia. It is a common practice among the
global enterprises to channelize their profits towards the tax havens with the fixation of
prices, which cannot be construed to be realistic, while making transactions with their
subsidiaries. The enterprises who are operating globally and having dealings with its
subsidiaries situated in another tax jurisdiction would be required to approach the Australian
Taxation Office for the purpose of carrying out the review and audit of their transfer pricing.
The Australian Taxation Office would make the required adjustments and impose penalties if
necessary with respect to the transfer pricing. The enterprises with a with a broad scope of
have international transactions with their subsidiaries are more prone to attract the process of
review by the Australian Taxation Office. In case an enterprise is involved in a considerable
amount of transactions with its subsidiaries situated internationally and whose performance
with respect to taxation is low with respect to its industry norms, the same would have a
greater affinity of being subjected to a review by the Australian Taxation Office
(www.ato.gov.au, 2019).
Question 2
The entities that are controlled by a common management are often subjected to
transactions that are required to be carried out between them. This includes the transfer of
items from one of the commonly controlled unit to the other. In a situation, where a one of

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the commonly controlled enterprise and the other enterprise are entering into the transaction,
the transfer pricing is required to be similar as that of the pricing existing between two non-
related parties. These commonly controlled enterprises are involved with the usage of the tax
regimes to aid the tax minimisation. The enterprises are often involved in the fixation of
prices that are understated for the purpose of aiding the minimization of the taxes that has
been effected by the understatement of the profits. This strategy has been evident in many
case where the enterprises has used the aid of profit misstatement for the purpose of profit.
The enterprises all over the world has been evident in utilising these strategies for the purpose
of tax avoidance to be effected using the tax regime. It is a common practice among the
global enterprises to channelize their profits towards the tax havens with the fixation of
prices, which cannot be construed to be realistic, while making transactions with their
subsidiaries. This has been termed as a form of aggressive tax avoidance and has been an
abuse of the transfer pricing strategy. The abuse of such nature can also be effected by way of
availing loans from the foreign subsidiaries for the purpose of tax minimization
(www.ey.com, 2019).
Question 3
Google Australia has been an eminent example of the corporation involved in transfer
pricing. A regional headquarters of the Google has been running in Australia and that
headquarters has been running a subsidiary in Singapore. The subsidiary located in Australia
has been conferred with the responsibility of extending support towards the marketing and
sales to the users. It also provided the services relating to research with respect to the Google
worldwide. During the year 2013-14, the Australian Google has an estimated revenue
collection of $358 million, which has earned them a profit of $46 million. Owing to this a tax
payment of AU$7.1 million has been made and a credit of $4.5 million has been claimed with
respect to the taxes. The payment of taxes by the Australian subsidiary compared to the large

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scale of operation that Google has been involved into was raised as a question. In a reply to
this question, it has been contended by Google that they have been making payment toward
their share of taxes in Singapore. This has been summed up to be payment of US $3.3 billion
taxes against a revenue of $66 billion. This has made it evident that the total percentage of tax
paid has been 19%, which much lower compared to corporate tax of statutory nature of 35%
prevailing in the U.S (www.smh.com.au, 2019).

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Reference List
www.ato.gov.au (2019). Transfer pricing. [online] Ato.gov.au. Available at:
https://www.ato.gov.au/Business/International-tax-for-business/Transfer-pricing/ [Accessed
12 May 2019].
www.ey.com (2019). 2017-2018 EY Worldwide Transfer Pricing Reference Guide -
Australia. [online] Ey.com. Available at:
https://www.ey.com/gl/en/services/tax/international-tax/transfer-pricing-and-tax-effective-
supply-chain-management/2017-2018-ey-worldwide-transfer-pricing-reference-guide-
australia [Accessed 13 May 2019].
www.smh.com.au (2019). [online] Available at: https://www.smh.com.au/business/google-
paid-117m-tax-in-2014-but-says-theresmorewe- can-do-20150430-1mxbx7.html [Accessed
13 May 2019].