ATO Guidance on related party marketing hubs | KPMG | AU

ATO Guidance on related party marketing hubs: Game of Zones

ATO Guidance on related party marketing hubs

David Bond and Nick Warth examine the six different transfer pricing (TP) risk categories or ‘zones' in the ATO's compliance approach to offshore related party marketing hubs.

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On 16 January 2017, the Australian Taxation Office (ATO) released the Practical Compliance Guideline (PCG) on its compliance approach to offshore related party procurement, marketing, sales and distribution hubs.

The PCG assigns hub arrangements one of six different transfer pricing (TP) risk categories or ‘zones’:

  • White — Already reviewed by ATO
  • Green — Low risk
  • Blue — Low to moderate risk
  • Yellow — Moderate to high risk
  • Amber — High risk
  • Red — Very high risk

Life in the white zone

Hubs qualify for the white zone if the ATO has already reviewed the hub and agreed the transfer pricing outcomes, or agreed an advance pricing agreement (APA). Hubs in the white zone will generally not be subject to further ATO review.

Life in the green zone

Hubs can qualify for the green zone if their marketing profit is less than 100 percent of their costs. Hubs in the green zone will generally not be subject to ATO review or audit and can use the simplified transfer pricing record keeping concessions.

Life outside the green zone

Hubs outside the white or green zones are risk rated depending on:

  • the tax impact of the hub (broadly Australian tax on overseas hub profit) (ranges <$5m, $5m to $50m, or >$50m), and
  • whether the taxpayer has TP documents that meet the TP documentation requirements.

Hubs outside the green zone are more likely to be reviewed by the ATO and therefore should ensure they have robust transfer pricing documentation.

The PCG takes effect from 1 January 2017 and applies to new and existing hub arrangements. At this stage the PCG only applies to marketing hubs and not to shipping or procurement or other hubs.

KPMG can assist with calculating risk ratings for hubs, preparing transfer pricing documentation, and/or managing ATO risk reviews, audits, or litigation.

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