The OECD Guidelines is at pains to point out that the mere fact a transaction may not be observed between independent parties does not mean that it is not arm's length. Notwithstanding this, the ATO expects, and Australian courts increasingly require, evidence of the "commercial rationality" of intercompany transactions. This may pose technical and practical challenges for taxpayers where arm's length comparable transactions cannot be observed. This paper explores a range of legal, economic and practical questions for taxpayers and their advisers, including:
- Arrangements unique to each multinational group, such as intangibles transactions, business restructurings and complex profits splits; and
- Arrangements for which there is no (or weak) comparable evidence, such as arrangements in industries with no independent market participants and transactions
- for which there is no publicly available pricing data.