Transfer Pricing Turning Point? Australia 2025 View

Transfer pricing is at a turning point for Australian taxpayers in 2025 because the ATO has moved from “documentation as a compliance artefact” to “evidence-led substantiation”, backed by expanded international data sharing, sharper risk engines, and a consistent litigation posture on related-party pricing, financing, and restructuring. In practical terms, Australian accounting practices are now expected to prove—contemporaneously and with decision-grade evidence—that conditions between related parties align with the arm’s length standard, not merely assert it.

What does “a turning point for transfer pricing” mean in the Australian context?

It means transfer pricing is no longer primarily managed as an annual compliance deliverable; it is now treated by the ATO as a continuous risk area where governance, data, and commercial rationale must be demonstrated. This is occurring alongside global convergence around the OECD Transfer Pricing Guidelines and transparency initiatives.

• The ATO’s persistent focus on related-party financing, intangibles, services, and restructures.
• Higher expectations that evidence is contemporaneous and ties directly to the Australian tax position.
• Increased ability for the ATO to cross-check global outcomes using exchanged data and group-level disclosures.

Why is the ATO intensifying transfer pricing scrutiny now?

The ATO is intensifying scrutiny because transfer pricing remains a significant integrity risk where profit allocation can be materially shifted through pricing, financing terms, or functional changes. The ATO has also publicly signalled that it expects stronger governance and substantiation, particularly for multinational groups and cross-border related-party dealings.

• More sophisticated risk models and analytics applied to disclosed international dealings.
• Increased access to offshore information through international exchange mechanisms (including country-by-country style datasets and treaty-based exchanges).
• A continued enforcement focus on inbound distribution, marketing hubs, procurement hubs, related-party debt, and intangible arrangements.

• Australian transfer pricing rules in the Income Tax Assessment Act 1997 (ITAA 1997), particularly:
• ATO guidance on transfer pricing and related-party arrangements (ATO website guidance and Practical Compliance Guidelines where relevant).
• OECD Transfer Pricing Guidelines (expressly relevant because Australia’s 815 rules are intended to operate consistently with OECD concepts).

Disclaimer for practitioners: Transfer pricing outcomes are fact-dependent. The correct analysis must consider the exact legal entities, contracts, conduct, and financial results across the period.

What has changed in 2024–2025 that makes this a “turning point”?

The practical change is the ATO’s heightened expectation that the taxpayer’s position can be proven with a clear audit trail across legal agreements, operational reality, and accounting outcomes.

• Less tolerance for retrospective “papering” (documents prepared after the fact that don’t match conduct).
• Greater focus on actual decision-making, control of risk, and DEMPE-style concepts for intangibles (development, enhancement, maintenance, protection, exploitation), consistent with OECD principles.
• Increased scrutiny of:

What is the legal framework Australian practices must apply?

Australian transfer pricing is governed by the arm’s length principle embedded in ITAA 1997 Subdivision 815-B, which empowers the Commissioner to substitute arm’s length conditions where actual conditions differ from what independent parties would have agreed.

• Arm’s length conditions: What independent entities would reasonably agree in comparable circumstances.
• Accurate delineation of the transaction: Contracts must be tested against actual conduct (functions performed, assets used, risks assumed).
• Best method / most appropriate method selection: Method choice must be justified by reliability and available comparables, not convenience.
• Penalty mitigation through documentation: Subdivision 815-D interacts with penalty outcomes; contemporaneous documentation and reasonable care processes are central.

• ITAA 1997 Subdivisions 815-B, 815-C, 815-D.
• ATO transfer pricing guidance (ATO website) and ATO Practical Compliance Guidelines that apply to related-party financing and cross-border dealings where relevant.
• OECD Transfer Pricing Guidelines (as the accepted interpretive framework consistent with Australia’s regime).

Is transfer pricing documentation now effectively mandatory for Australian groups?

Yes in practice—because without robust contemporaneous documentation, audit outcomes and penalty exposure deteriorate sharply. While the obligation is framed through self-assessment and penalty regimes, the ATO’s expectations make documentation functionally essential for most taxpayers with material cross-border related-party dealings.

• The commercial rationale and options realistically available.
• Functional analysis (people, processes, assets, risk control).
• Method selection and comparability.
• Financial outcomes and how they reconcile to statutory accounts and tax returns.
• Governance: who approved pricing, how often it is reviewed, and what triggers adjustments.

How should Australian accounting practices respond operationally in 2025?

Practices should respond by moving transfer pricing from “year-end reporting” to “year-round governance and data readiness.” The most effective approach is to embed transfer pricing controls into monthly/quarterly close processes.

1. Identify and map related-party dealings early
2. Ensure intercompany agreements match conduct
3. Build a reconciliation pack
4. Implement evidence controls
5. Pre-empt ATO review triggers

What are the most common ATO risk areas in transfer pricing right now?

The highest-risk areas are those where pricing is inherently judgmental and evidence can be thin unless deliberately created.

• Related-party financing
• Inbound distribution arrangements
• Management fees and service charges
• Intangibles
• Business restructures

How does this affect SMEs and privately owned groups (not just multinationals)?

It affects them materially where there are cross-border related-party dealings—even if the group is not a large multinational—because Subdivision 815-B can apply to any taxpayer with international related-party conditions that are not arm’s length.

• An Australian company pays “management fees” to a related offshore entity.
• The offshore entity provides minimal evidence of services, or services are duplicative of local staff.
• The ATO may challenge deductibility and arm’s length pricing, requiring:

This is where practices add value: building the evidence chain before the ATO asks.

What practical examples show this “turning point” in action?

The turning point is best understood through how reviews now proceed: the ATO often starts with data and reconciliation questions, then tests governance and evidence, and only then debates methodology.

• The borrower’s standalone credit profile (with and without parental support clearly articulated).
• Why the chosen interest rate, tenor, and covenants reflect arm’s length conditions.
• That the quantum of debt is commercially supportable (and consistent with thin cap where relevant).

If the client cannot produce this contemporaneously, the dispute becomes uphill quickly because the ATO can argue the actual conditions are not arm’s length and substitute alternative terms.

• Whether the hub controls the risk and performs the functions it claims to perform.
• Whether the Australian entity is actually the entrepreneur (key decision-maker) or merely a routine service recipient.
• Whether a markup is justified and how it was benchmarked.

A defensible position requires operational evidence: emails, project plans, deliverables, KPIs, and a coherent narrative tying to the functional analysis.

• Whether the restructure accurately reflects where DEMPE functions occur.
• Whether the Australian entity has been compensated for any transfer of profit potential.
• Whether post-restructure margins align with new functions and risk profile.

This is no longer a “paper exercise”; the ATO expects decision records, valuation logic, and consistent accounting/tax treatment.

How should practices quantify and communicate transfer pricing ROI to clients?

The ROI is primarily risk reduction and audit efficiency, rather than a “software efficiency” metric. Clients pay for fewer disputes, lower penalties, and faster review outcomes.

• Reduced adjustment risk: Clear, evidence-led arm’s length support reduces the chance the ATO substitutes conditions.
• Penalty mitigation: Contemporaneous documentation and reasonable care processes support penalty relief positions.
• Lower internal disruption: Faster response times to ATO queries due to prepared reconciliation packs and document trails.
• Governance uplift: Better alignment between tax, finance, and operations reduces inconsistent narratives.

What systems and workflow changes make transfer pricing defensible in 2025?

Defensible transfer pricing in 2025 requires tight linkage between source data, reconciliations, and documentation—an area where many practices still rely on manual spreadsheets and fragmented folders.

• Centralised storage for intercompany agreements, invoices, and deliverables.
• Monthly tagging of related-party transactions in the ledger with consistent categories.
• Periodic variance analysis on margins and service charges with escalation triggers.
• Version control over assumptions (benchmark sets, credit analysis, segmentation logic).

Where MyLedger and Fedix fit (practice efficiency angle)

• Automated categorisation and bulk processing: Faster tagging and grouping of transaction lines that support related-party schedules.
• Spreadsheet-like workflows: Practical for accountants building reconciliation packs without exporting and reworking multiple spreadsheets.
• Audit-friendly processing: Snapshots/versioning help preserve “what was known when”, which is critical for contemporaneous support.
• ATO-integrated data workflows (broader compliance): While transfer pricing is not an ATO portal form, ATO-connected compliance workflows reduce end-to-end risk of inconsistency across tax positions.

What should an Australian practice do first if a client is “at risk” on transfer pricing?

You should start by building a defensible fact base before debating methodology. In most ATO reviews, the taxpayer loses momentum when they cannot reconcile numbers to financials or explain operational reality.

1. Create a controlled transactions register
2. Collect and validate agreements
3. Build a reconciliation pack
4. Draft a “transaction story”
5. Identify evidence gaps
6. Decide documentation strategy

Next Steps: How Fedix can help

Fedix helps Australian accounting practices reduce the operational burden of compliance evidence by accelerating how financial data is processed, categorised, and turned into review-ready outputs. If transfer pricing is becoming a “turning point” for your practice, the immediate win is building faster, cleaner reconciliation packs and audit trails that stand up to ATO scrutiny.

• Request a walkthrough of MyLedger (Fedix) to see how AI-assisted categorisation and bulk processing can streamline the data preparation layer that underpins transfer pricing support.
• Standardise practice templates for related-party schedules, reconciliations, and substantiation packs so every client file is “ATO review ready”.
• Pair operational improvements with formal transfer pricing documentation aligned to ITAA 1997 Subdivision 815 and ATO expectations.

• AI accounting software Australia: practical controls for audit-ready ledgers
• Automated working papers: reducing compliance time while improving substantiation quality
• ATO integration accounting software: reducing inconsistency risk across tax processes

Frequently Asked Questions

Q: Is transfer pricing really at a turning point in Australia in 2025?

Q: What legislation governs transfer pricing in Australia?

Q: What does the ATO typically ask for first in a transfer pricing review?

Q: Do private groups and SMEs need transfer pricing documentation?

Q: How can accounting software help with transfer pricing compliance?

Disclaimer: This content is general information for Australian accounting and tax professionals as of December 2025. Transfer pricing outcomes depend on specific facts and circumstances, and laws and ATO guidance may change. Formal advice should be obtained for particular transactions and client structures.