The Australian Taxation Office (ATO) is offering administrative concessions in relation to administrative penalties and interest on historical positions to certain taxpayers that proactively assess and voluntarily disclose tax risks associated with offshore hubs, and who are prepared to restructure their arrangements. Non co-operative taxpayers face ineligibility for the advanced pricing arrangements (APA) program, formal use of information gathering powers, and increased prospects of litigation.
The ATO has released a draft Practical Compliance Guideline (PCG) setting out its risk assessment framework in relation to hubs. Taxpayers have a strategic decision to make in relation to the hubs; to self-assess risk and proactively engage with the ATO or risk an ongoing cycle of reviews and audits. The amnesty will be available for a period of 12 months from the finalisation of the PCG.
While the ATO's focus to date has been on potential tax risks associated with hubs (TA 2015/5), there has been limited guidance issued (TR 2014/6). Instead, the ATO has made announcements regarding its concerns and numerous risk reviews and audits are already underway.
In an environment where there is increased scrutiny on taxpayers paying the appropriate amount of tax, the ATO’s concern is not limited to Transfer Pricing risks, but may also involve the controlled foreign corporation (CFC) regime, capital gains tax (CGT) and the General Anti-Avoidance Provisions, and specifically whether:
For hub arrangements in the energy and resources sector, where the hub profit is greater than 100 percent mark up of hub costs, the draft PCG indicates a current compliance focus on:
It would be prudent for taxpayers to undertake an assessment of the taxation risks associated with their position with the PCG. Taxpayers should consider strategies to manage risk, including preparation of appropriate transfer pricing analysis and evidence should their position be examined by the ATO or ultimately a Court/Tribunal.
The draft PCG has been released for public consultation, with comments due by 30 September 2016. It is expected that the PCG will be finalised in October 2016.