Multinational corporations face rising tax risks amid ATO transfer pricing overhaul

Australia's tech and multinational sectors are facing a wave of regulatory disruption, as sweeping changes to transfer pricing compliance rules intensify scrutiny and stretch already limited in-house resources.

Speaking during a webinar hosted by Wolters Kluwer and BDO Australia, tax and technology leaders warned that companies must act fast to meet stricter Australian Taxation Office (ATO) requirements - particularly those involving data-driven filings and disclosures that demand tight integration between HR, finance and tax systems.

"Transfer pricing is the ATO's number one international tax-related risk," Michael Smith, Partner at BDO, explained. "With these new rules, the pressure is not just about getting it right - it's about getting it done on time with limited resources."

One major shift is the revamped Short Form Local File (SFLF), now standardised through an XML schema (version 4.0), replacing the traditional PDF or PowerPoint format.

For corporates, this means qualitative data - like internal reporting lines between Australian and offshore employees—must now be embedded directly into structured templates.

"If you're responsible for this, you'll need to work closely with your HR team early," said Smith.

"We're talking about collecting data that isn't readily available, and if your systems aren't aligned, this will be a significant pain point."

Daphne Lee, Product Manager at Wolters Kluwer, highlighted the increasing importance of automation and integration for compliance teams. "Working harder isn't an option anymore," she said.

"You've got to work smarter - and that means using platforms that can support the new schema out of the box."

Companies using legacy systems that can't handle XML reporting or lack visibility into cross-border personnel structures may find themselves scrambling to retrofit processes. "Not all tech platforms are prepared for this," Lee warned.

And it's not just about technology.

The ATO's new expectations around business restructures could open the floodgates on disclosure requirements. "Even if one step of a restructure touches Australia, you may have to report every single step—10, 20, even 100 actions," Smith said. "That could be a nightmare if you don't have centralised data or workflow visibility."

Tech companies are especially vulnerable, given their often complex IP structures and offshore development hubs. The ATO is zeroing in on intangibles, and Smith noted the regulator now expects detailed disclosures - even where software or data is embedded in seemingly ordinary transactions.

"Just because you're selling software or branded goods doesn't mean you're off the hook," he said. "If there's IP involved, it could trigger withholding tax obligations or disputes about underpaid royalties."

The PepsiCo case - currently under appeal - illustrates the ATO's evolving stance.

While not strictly a transfer pricing dispute, the case is seen as a bellwether for how courts might interpret transactions involving bundled intangibles.

"If you're paying a related offshore party for anything that might involve IP, the risk profile has changed," Smith said.

Another flashpoint is intra-group financing. Legislative changes enacted in 2024 have eliminated the previous safe harbour rules, forcing companies to apply transfer pricing analysis not only to interest rates, but also to the total amount of debt.

"Previously, you could rely on thin capitalisation rules and avoid deep transfer pricing scrutiny," Smith explained. "Now, the transfer pricing analysis must be done first - and that changes everything."

Smith described the shift as "a full employment mandate for transfer pricing professionals," especially given the lack of official ATO guidance.

"The reality is, companies are having to build their own frameworks using real financial data, industry benchmarks, and internal policies."

Public Country-by-Country (CbC) reporting is also going live, with companies required to disclose their global tax footprint by 2026. For tech brands operating under public scrutiny, the reputational stakes are high.

"This is about transparency," Smith said. "You don't want your tax numbers taken out of context, so the best approach is to prepare a 'taxes paid' report to explain your story - before the headlines write it for you."

The updated CbC rules also slash the number of exemptions from seven to three, meaning many companies that previously avoided filing now must comply.

With administrative penalties reaching up to $825,000 for late or incorrect lodgements, Smith issued a stark warning: "Compliance isn't optional. If you don't prioritise this now, the cost later could be severe - financially and reputationally."

The webinar ended with a clear takeaway for tech leaders: successful compliance depends on how well companies align their people, processes and platforms.

"If you don't have the right systems, if your data is scattered, and your teams aren't connected, you're going to struggle," Lee said. "Technology isn't just part of the solution - it is the solution."

For digital-first companies, the message is clear: tax risk is now a data problem. Solving it means getting your tech stack, people, and compliance strategy speaking the same language - before the regulators come knocking.

If you would like to get in touch with either of the two speakers or learn more about how Wolters Kluwer can support you in your transfer pricing needs, please reach out to them through the below link.