Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.
Aug. 10—The Australian Taxation Office is proposing a five-level framework to assess transfer pricing risk arising from hubs used by multinational companies in Australia to centralize business activities such as marketing, sales and distribution.
Multinational companies would be given 12 months to remedy high-risk activities for using hubs to reduce Australian taxes ahead of a proposed five-level framework introduced Aug. 10 in a draft “ practical compliance guideline .”
The guideline suggests the tax authority will use multiple variables to allocate marketing and other hubs into one of five risk categories. Low-risk activities classified as “green zone” hubs would generally not undergo compliance scrutiny. “Red zone” indicates a very high-risk hub activity, which would undergo scrutiny as a matter of priority from the Australian Tax Office (ATO).
Companies using green zone hubs would also be eligible to use a simplified transfer pricing record-keeping option, and would have access to the ATO's advance pricing agreement program, subject to meeting other criteria.
The ATO said in the 142-page consultation paper that it is concentrating efforts on international related party dealings that pose the highest risk of not complying with the transfer pricing rules. From the release of the paper, complex hubs appear to be within that category.
Use of marketing hubs in Singapore came under scrutiny in 2015 during an Australian Senate inquiry into whether multinationals were shifting profits to lower tax jurisdictions. In appearing before the committee, Rio Tinto Group received praise for providing “considerable detail” about how the company used marketing hubs in Singapore (223 TMIN, 11/19/15).
“Most Australians wouldn't have realized that iron ore was being sold through Singapore,” said Labor Party member Andrew Leigh. “They would imagine that the sales path was the same as the path that the ships took.”
Under the draft guideline, compliance checks would be undertaken for hub activities that fall into one of three intermediate risk categories: blue, yellow and amber that fall between the green, low-risk, and red, high-risk categories.
All hubs rated outside a green zone might be required to disclose additional information, the guidelines say, such as the value of the goods marketed, sold or purchased by the hub, and the effective commission generated by it.
The guideline also cautions that if the ATO opts to review a hub, “we may obtain information from third parties such as your suppliers and customers.”
The risk rating allocated to a hub might also influence the ATO's approach to resolving disputes, such as its willingness to use alternative dispute resolution processes, it says.
The ATO acknowledged the release of the guideline might prompt some taxpayers to adjust the pricing of their hub dealings to ensure a green zone rating, and offers an inducement for them to do so quickly.
“If you have an existing arrangement and you intend to adjust your pricing to move within the green zone going forward, the Commissioner is willing to work with you to resolve the ‘back years' in a co-operative and practical manner,” the guidelines say.
Specifically, if a taxpayer makes a voluntary disclosure on back years and adjusts its pricing to come within the green zone, the commissioner will forgive any penalties under Division 284 of Schedule 1 of the Taxation Administration Act, it said.
It would do so only if hub has commercial and economic substance. It is also conditional on the taxpayer making a “full and true” disclosure of the arm's-length conditions.
The guidance, which also details current compliance hot spots, would be effective when finalized and would apply to existing and new hubs.
To contact the reporter responsible for this story: Murray Griffin in Melbourne at email@example.com
To contact the editor responsible for this story: Penny Sukhraj at firstname.lastname@example.org
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)