Documenting Your International Related Party Transactions (Transfer Pricing): Why SMEs Need To Act Now

The Australian Taxation Office’s (ATO) latest report: “RTP: Public and Multinational Businesses”, sends a clear warning to the SME market. The ATO’s focus on transfer pricing is no longer confined to the largest corporations. It is increasingly targeting mid-tier and privately owned groups.

If your business engages in cross-border related party transactions, including intercompany loans and service arrangements, this report is highly relevant to you. The “wait and see” approach on documenting your cross-border transactions is over.

What the ATO’s Latest Report Reveals

On 18 September 2025, the ATO released its Findings report: “RTP: Public and Multinational Businesses – What We’ve Learned from Reportable Tax Position (RTP) Schedule Category C Disclosures Made in the 2023–24 Income Year”.

This data, drawn from disclosures by large public and multinational companies from 2020–21 to 2023–24, illustrates how the ATO identifies and prioritises tax risks, including transfer pricing, related-party financing, and intangible asset arrangements.

The report focuses on large groups. However, the insights are equally critical for SMEs. The ATO uses findings from these programs to shape its broader compliance strategy. This means that similar expectations regarding documentation, governance, and transparency are gradually being applied to smaller and privately owned groups.

The Implications for SMEs

The Tax Law requires all entities undertaking international related party dealings to ensure that the tax outcomes are calculated on the basis that the parties were dealing at arms length (i.e. as unrelated parties). The ATO considers you cannot show ‘arms length’ compliance without a sufficient level of documentation (which may include a study of financial results from independent entities acting in similar circumstances).

Small and medium-sized enterprises are increasingly required to meet the same documentation standards as larger entities, especially when international dealings are involved. The ATO is signalling several key expectations:

• Current, Evidence-Based Documentation: Out-of-date benchmarking or missing agreements are red flags.
• Governance and Consistency: Your Income Tax Return disclosures should align with your actual policies and calculations.
• Scrutiny of Financing, Management Fees, and Licensing Arrangements: These areas are frequently reviewed by the ATO.

Businesses which are not required to lodge an RTP Schedule may be flagged by the ATO’s systems if they exhibit risk patterns.

Our major trading partners, including the United States, are also increasing scrutiny in relation to international related party transactions. There are no exemptions or thresholds for SMEs regarding transfer pricing compliance documentation. The U.S. Internal Revenue Service (IRS) can review cross-border transactions of companies, irrespective of their size or the transaction amount, leading to an uptick in transfer pricing audits for SMEs.

Australian firms engaging in cross-border transactions with the U.S., particularly involving intellectual property licenses, service agreements, intercompany loans, and buy-sell transactions, should actively manage their transfer pricing strategies and policies annually. They should also maintain contemporaneous documentation of all cross-border transactions to safeguard against penalties from a U.S. transfer pricing perspective.

Additionally, Australian companies with U.S. subsidiaries should closely monitor the profitability of their U.S. entities. Loss-making subsidiaries are both common and particularly susceptible to scrutiny by the IRS. To enhance their defense against IRS transfer pricing audits, Australian companies involved in cross-border transactions with the U.S. should take proactive steps to manage their transfer pricing policies and prioritize compliance to mitigate potential transfer pricing penalties.

How can Bentleys and our Allinial Global associates help you to manage your transfer pricing compliance?

We recognise that the cost of a comprehensive transfer pricing and benchmarking report may exceed the benefit where you only have simple or low value related party transactions. Therefore, we apply a risk management approach to helping you with your transfer pricing strategy and compliance.

Our services will be tailored specifically to your circumstances and may involve:

• Low cost risk review: Assess and document, at a high-level, your global structure and whether there are risks where financial results in different countries may not align with the commercial structure or fall outside ‘safe harbour’ ranges;
• Limited transfer pricing documentation using safe harbors: Document your global supply chain functions and related party transactions and use available regulator and OECD safe harbours to manage the tax risk of your related party transactions;
• Benchmarking Studies: Prepare periodic benchmarking studies to ensure that your results fall within arms-length ranges such that you are protected in the event of a regulator review;
• Tax governance review: Update your tax governance framework to address transfer pricing concerns, particularly focussing on regulator expectations under their SME “next-5000” reviews;
• Legal agreement review: Ensuring intercompany loans have commercial terms and supporting evidence reflecting arms-length expectations and putting in place compliant related party service and IP agreements; and
• Tax compliance: Integrating transfer pricing into your annual tax compliance cycle and updating your documentation annually as the business changes.

Where you can demonstrate clear, evidence-based transfer pricing positions it will not only help you avoid audit disputes and unnecessary penalties, it will make your company more attractive to a potential purchaser in future.

Want to know more about how we can help you?

Contact Simon How in Australia or Josh Finfrock in the US to discuss your situation.  They can offer you tailored advice specific to your industry, business structure and future objectives.

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.