Amnesty for offshore market hubs | KPMG | AU
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Amnesty for offshore market hubs: prevention before correction

Amnesty for offshore market hubs

Angela Wood, Partner, Tax Dispute Resolution and Frank Putrino, Partner, Transfer Pricing, analyse the ATO's new amnesty for voluntary disclosure of offshore hub related tax risks.


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The Australian Taxation Office (ATO) is offering administrative concessions in relation to administrative penalties and interest on historical positions to certain taxpayers that proactively assess and voluntarily disclose tax risks associated with offshore hubs, and who are prepared to restructure their arrangements. Non co-operative taxpayers face ineligibility for the advanced pricing arrangements (APA) program, formal use of information gathering powers, and increased prospects of litigation.

The ATO has released a draft Practical Compliance Guideline (PCG) setting out its risk assessment framework in relation to hubs. Taxpayers have a strategic decision to make in relation to the hubs; to self-assess risk and proactively engage with the ATO or risk an ongoing cycle of reviews and audits. The amnesty will be available for a period of 12 months from the finalisation of the PCG.

While the ATO's focus to date has been on potential tax risks associated with hubs (TA 2015/5), there has been limited guidance issued (TR 2014/6). Instead, the ATO has made announcements regarding its concerns and numerous risk reviews and audits are already underway.

In an environment where there is increased scrutiny on taxpayers paying the appropriate amount of tax, the ATO’s concern is not limited to Transfer Pricing risks, but may also involve the controlled foreign corporation (CFC) regime, capital gains tax (CGT) and the General Anti-Avoidance Provisions, and specifically whether:

  • the economic substance of the arrangements are materially different to the associated legal form
  • the pricing for the functions performed, assets used and risks assumed do not reflect conditions that would operate between independent entities dealing at arm’s length.

For hub arrangements in the energy and resources sector, where the hub profit is greater than 100 percent mark up of hub costs, the draft PCG indicates a current compliance focus on:

  • the use of third party commission rates in circumstances where there is an absence of supporting information that addresses the Organisation for Economic Co-operation and Development comparability factors (particularly so for LNG projects)
  • testing transfer prices and the use of alternative profit level indicators
  • failure to revisit the price setting mechanism in response to significant changes in the external environment.

It would be prudent for taxpayers to undertake an assessment of the taxation risks associated with their position with the PCG. Taxpayers should consider strategies to manage risk, including preparation of appropriate transfer pricing analysis and evidence should their position be examined by the ATO or ultimately a Court/Tribunal.

The draft PCG has been released for public consultation, with comments due by 30 September 2016. It is expected that the PCG will be finalised in October 2016.

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