The Australian Taxation Office (ATO) already targets intangible transactions in its transfer pricing reviews and audits.
Although the Organisation for Economic Co-operation and Development's (OECD) paper on the transfer pricing aspects of intangibles—under the base erosion and profit shifting (BEPS) project—is a work in progress, it provides increased clarity and a useful framework on the treatment of intangibles.
In preparing for ATO transfer pricing reviews and audits, taxpayers need to determine that, at a minimum, intangibles are well defined, the economic ownership is properly supported, and the value that is created from intangibles is clearly outlined.
The structure and value of intangibles in a value chain is a significant factor relevant to determining where profit is earned and tax is paid, and this can be complex to plan and manage.
The OECD’s BEPS paper and recommendations on the transfer pricing aspects of intangibles provide a helpful guide as to the proper definition of intangibles—a critical first step of any intangible analysis.
Yet, taxpayers may be concerned about increased complexity and that potential disputes with the tax authorities could potentially allow them to re-construct transactions involving intangibles.
While there are limited details in relation to this new reconstruction authority in the BEPS paper, this is already an issue in Australia. The authority to re-construct a transaction arises under the new Australian transfer pricing rules when economic substance is inconsistent with legal form or not in line with what an independent party would do.
Read a September 2014 report prepared by the KPMG member firm in Australia: An increasing focus on intangibles
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