Australia: ATO guidance on related-party marketing hubs

Australia: ATO guidance on related-party marketing hubs

The Australian Taxation Office (ATO) on 16 January 2017 released its practical compliance guideline (PCG) concerning the ATO approach to offshore related-party procurement, marketing, sales, and distribution hubs.

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The aim of the PCG is to assist taxpayers to:

  • Assess the transfer pricing risks for overseas related-party hubs
  • Understand the expected ATO review activity based on the risk profile of a hub
  • Understand the options available to reduce the transfer pricing risk for a hub
  • Understand what the ATO will be looking for when they review a hub.

Framework – six “risk categories”

The PCG assigns hub arrangements one of six different transfer pricing 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

The requirements of each zone are detailed in a table [PDF 44 KB].

Life in the white zone

Hubs qualify for the white zone status if the ATO has already reviewed the hub and agreed to the transfer pricing outcomes, or agreed to an APA. Hubs in the white zone will not be required to self-assess their risk rating and will generally not be subject to further ATO review.

Life in the green zone

Hubs can qualify for the green zone status if their marketing profit is less than 100% 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 recordkeeping 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 less than $5 million, from $5 million to $50 million, or greater than $50 million)
  • Whether the taxpayer has transfer pricing documents that meet the transfer pricing documentation requirements
  • Hubs outside the green zone are more likely to be reviewed by the ATO, and therefore need to consider whether they have robust transfer pricing documentation.

Moving into the green zone

Taxpayers can move into the green zone by adjusting hub pricing for the last four years, so hub profit is less than 100% of costs.  While taxpayer will pay additional primary tax for those years, the ATO will generally remit any penalties or interest, and not undertake review or audit activity on the hub.

Effective date for PCG

The PCG is effective beginning 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.

 

For more information, contact a tax professional with the KPMG member firm in Australia:

Nick Warth | +61 8 9263 7731 | nwarth1@kpmg.com.au

David Bond | +61 8 9263 7177 | dbond@kpmg.com.au

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