When goods or services are transferred between related companies, the prices are referred to as transfer prices.
Disputes sometimes develop when the rights of a third party are affected by the transfer price or when taxation authorities are concerned that the transfer prices cause an inappropriate decrease in the tax obligations of a corporate group.
The rights of third parties or taxation authorities are often protected by a requirement that the transfer prices affecting those rights be similar to those that would arise in an arm’s length transaction. Sometimes this requirement is referred to as requiring that transfer prices be market prices.
Frontier Economics uses its strengths in economics, finance and econometrics to advise on disputes over transfer prices. We are retained to give evidence in arbitrations, where many of these disputes are resolved, and in tribunal and court hearings.
Some of our work in transfer pricing:
APLNG Judicial Review
Frontier Economics assisted APLNG (the consortium that developed the Asia-Pacific LNG project that exports through Gladstone) through the judicial review of the Queensland Treasurer’s Petroleum Royalty Decision. The dispute centred around the method that should be used to determine the hypothetical arm’s length transfer price of gas, which had been the subject of a number of expert reports.
Our role was to produce an independent expert report on the approaches to determining the appropriate transfer price. We worked closely with APLNG’s legal representatives and Counsel in preparing submissions to the Supreme Court. The Court held that there were deficiencies in the Treasurer’s approach and the royalty decision was sent back to be remade. The result was a complete overhaul of the Queensland Government’s approach to determining royalties.
ATO challenge to transfer pricing of large Australian company
Frontier Economics was retained by lawyers for a large Australian company to advise on a dispute between the company and the Australian Tax Office over the prices paid by an overseas distributor of the company for the company’s products. We used econometric techniques to analyse the prices paid by a large number of comparators. The dispute was settled prior to litigation.