Australia - Updates transfer pricing risk assessment framework for inbound distribution arrangements

Summary

The Australian Taxation Office (ATO) has released an updated version of Practical Compliance Guideline PCG 2019/1, which sets out a revised transfer pricing risk assessment framework for inbound distribution arrangements, including updated profit markers and refinements to the risk assessment approach.

Key points

Scope of inbound distribution arrangements

The guideline applies to entities that acquire goods or services from related foreign entities and distribute them in Australia. This includes arrangements where the Australian entity operates as an intermediary purchasing from related parties and generating revenue through resale.

Risk assessment framework

The guideline provides a structured framework used by the ATO to assess transfer pricing risk associated with inbound distribution arrangements. The framework incorporates both quantitative and qualitative factors in determining the overall risk profile of an arrangement.

The ATO applies a risk differentiation approach that categorizes arrangements into zones reflecting different levels of compliance risk.

Reference to “White Zone” category

The guideline refers to a “White Zone” category applicable to certain arrangements that have been subject to prior ATO review or agreement. Such arrangements may include those covered by an advance pricing arrangement (APA) or other forms of prior engagement with the ATO.

Updated profit markers

The guideline sets out profit markers used as quantitative indicators in the risk assessment process.

These markers are based on earnings outcomes and are applied to determine the relevant risk zone for an arrangement.

Separate schedules are provided for different industry segments, including:

• general distribution

• life sciences

• information and communication technology

• motor vehicle industry

Industry segmentation

The guideline applies an industry-based segmentation approach, with specific indicators and thresholds relevant to each sector.

This segmentation is used in conjunction with the profit markers to assess the risk profile of inbound distribution arrangements.

Compliance approach

The ATO outlines its compliance approach based on the assessed risk level of an arrangement.

Arrangements categorized as higher risk may attract increased compliance attention, while lower-risk arrangements may be subject to a lower level of engagement.

The guideline also refers to mechanisms that may provide increased certainty, including advance pricing arrangements.

Application

The guideline applies from the date of publication, as indicated by the ATO, and is subject to ongoing review.

Source

Australian Taxation Office, Practical Compliance Guideline PCG 2019/1 Transfer pricing issues related to inbound distribution arrangements

https://www.ato.gov.au/law/view/document?DocID=COG/PCG20191/NAT/ATO/00001

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Disclaimer

This content is for general informational purposes only and does not constitute professional advice.

Information provided herein is based on publicly available sources as of the publication date and may be subject to change.

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