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Australia Developing Marketing Hub Transfer Pricing Guide — Orbitax Tax News & Alerts

On 8 July 2015, the Australian Tax Office (ATO) announced it is developing a guide on the self-assessment of transfer pricing in respect to related party offshore marketing hubs, which is an area facing issues with arm's length compliance. The following is from the ATO.

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What are we doing?

We are committed to providing taxpayers with ways to mitigate their risk and help them with self-assessment and compliance. We will be developing a practical guide so taxpayers can assess the compliance risk associated with their marketing hub arrangements.

We will consult with interested parties from August to develop and issue the guide. It will aim to provide practical information for taxpayers including framing questions and quantitative indicators ('risk flags') that taxpayers should consider when assessing their level of compliance risk.

We are also reviewing a number of hub arrangements. In examining the economic substance of these arrangements, we are considering:

  • all of the facts and circumstances, such as the economic and commercial context of the arrangement
  • the hub's object and effect, from a practical and business point of view
  • the conduct of all parties, including the functions performed, assets used and risks assumed by each of them
  • whether independent parties operating in comparable circumstances would enter into similar arrangements.

What is our concern?

In some circumstances it appears the amount charged by the marketing hub to the Australian company is not what arm’s length (or independent) parties would pay.

In particular, we are concerned that:

  • the economic substance of these arrangements may be materially different to the associated legal form
  • the pricing for the functions performed, assets used and risks assumed in a marketing hub do not reflect conditions that would operate between independent entities dealing wholly independently with one another in comparable circumstances.

Where that is the case, the transfer pricing provisions will apply to substitute arm’s length conditions.

While transfer pricing is often the primary compliance issue, our inquiries are not limited to an examination of these issues. Other provisions, including the capital gains tax, controlled foreign companies and the general anti-avoidance provisions, may also be relevant.

What should you do?

If you have entered into, or are contemplating entering into, an arrangement of this type, we recommend you review the arrangement and assess your compliance with the transfer pricing rules. If you have any of the hallmarks discussed above or have concerns about the risk profile of the arrangement you should:

  • discuss your situation with us by emailing offshorehubs@ato.gov.au
  • seek independent advice.

Once available the practical guidance will assist you in assessing your level of compliance risk.