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What should an Australian subsidiary keep for head office fees?
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Overview
For each head office fee, your Australian team should be able to explain what it received and how the charge was calculated. A service agreement and evidence of local use give you a place to start.
Describe what the local business received
Your overseas head office sends its first management fee invoice to the Australian company. It says “group services” and gives a quarterly total. The local finance manager knows the team received IT support, but can’t tell how the charge was worked out. Sorting that out now makes the next eleven invoices much easier to explain.
Australian transfer pricing rules look at the conditions that independent parties would agree to in comparable circumstances. For a service fee, start with the work itself. Who did it? How did the Australian company benefit? Would an independent business pay for that work, or do it itself?
If the parent runs a help desk, keep the agreement, a description of the support and evidence of Australian usage. Separate work that benefits the local operation from costs incurred solely because the parent owns subsidiaries. Check whether the Australian business already pays someone else for the same service.
Explain how the amount reached the invoice
Suppose Australia accounts for 12% of the group’s active software users. User numbers might help allocate a shared licence cost. That same percentage may say very little about the value of legal work done for one market. Choose a basis that fits the service and document why. Any mark-up needs its own support.
As part of the monthly close, reconcile the invoice to the underlying costs and record any exchange rate or year-end adjustment.
