Transfer pricing to minimise tax

International transfer pricing is also known as profit up-streaming. It is a strategy of moving profits from a high tax jurisdiction (Australia/New Zealand) to a low tax jurisdiction (Singapore/Hong Kong).

Services may be performed by a service provider in Hong Kong for a client in Australia. No work is performed in Australia, and if any income is received by an Australian entity a corresponding charge by the Hong Kong entity to the Australian entity as a supplier should match to minimise any tax liability in Australia. In other words, the Australian entity should have little or no profit to declare to the Australian Tax Office.

The Hong Kong corporate tax rate is 16.5%. But the individual tax rate is only 0 - 15%. The Singapore corporate tax rate is 17%. Individual tax rate is 3.5 - 20%.

You can effectively pay less than 10% tax if you income split between your branch offices in Hong Kong and Singapore. This would provide a great competitive edge against Australian firms as you avoid GST (10%) and income tax (45%) and therefore could charge 50% less than Australian firms and maintain the same profit margin as they do.

Furthermore, technology costs and labour costs are much cheaper in Asia than in Australia. There is no payroll tax and the MPF is much less than the 9% superannuation required in Australia.

This what Google does in Australia.