Australian transfer pricing of intangibles migration arrangements finalised

This guideline offers a risk framework for taxpayers to gauge the chance of ATO scrutiny for general anti-avoidance rules or the transfer pricing rules to cross-border related party intangible migration arrangements. These arrangements broadly cover two main areas:

1. Migration of intangible assets
   
   This covers any restructuring or alteration related to a taxpayer's intangible assets, giving another entity access, use, possession, transfer, or benefit.
   
   
2. Mischaracterisation and non-recognition of Australian activities linked to intangible assets
   
   This primarily addresses tax risks stemming from a failure to acknowledge the Australian development, enhancement, and maintenance of intangible assets held overseas.

While the above focus areas are detailed, arrangements with lower risk may fall outside the PCG's scope, including distribution arrangements and arrangements with low-value services. 

The PCG is structured so that taxpayers can: 

• Identify the types of compliance risks associated with any intangible migration arrangements;
• Understand the characteristics of intangible migration arrangements deemed by the ATO as high risk; and
• Identify evidence the ATO will likely request from taxpayers.

The ATO compliance approach is summarised in this table:

The PCG draws on principles outlined in the Transfer Pricing Guidelines outlined by the Organisation for Economic Co-operation and Development (OECD) which define the term “intangible assets” as a reference to properties, assets, and rights that lack physical or financial substance yet which are susceptible to control for utilisation in commercial endeavours. This definition is not confined by any specific accounting or legal definitions or concepts.

The compliance risk ratings outlined in the PCG include identifiable factors associated with relevant intangible migration arrangements, an assessment of the foreign entity's substance, the arrangement's tax consequences, and the disclosure and documentation of arrangements.

This PCG signifies the ATO's emphasis on cross-border transactions and intangible assets, and follows the release of two earlier drafts in 2021 and 2023. With the ATO's compliance strategy now complete, an uptick in reviews related to transfer pricing of intangibles is anticipated. These will be supported by additional disclosures through the Reportable Tax Position (RTP) Schedule.

Ross Forrester is the director of Westcourt, an Australian accounting and tax structuring firm. He is the Chair of the GGI ITPG for Asia and State Chair for The Taxation Institute of Australia.