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Finalisation of ATO offshore drilling PCG

Finalisation of ATO offshore drilling PCG

The finalised ATO guidance enables taxpayers to self-assess their transfer pricing risk.

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Offshore rig

The Australian Taxation Office (ATO) released PCG 2020/1 Transfer pricing issues related to projects involving the use in Australian waters of non-resident owned mobile offshore drilling units – ATO compliance approach on 19 February 2020.

The finalised PCG is broadly in line with the draft version (PCG 2019/D5) released in September last year and primarily affects Australian taxpayers that lease a vessel (a “MODU”) from a non-resident related party under a bareboat charter arrangement for drilling and drilling-related activities (e.g. pipe-laying and heavy-lift vessels) in Australian waters.

Key amendments

The key amendments from the draft version of the PCG included:

  • additional clarification regarding the meaning of the term ‘the Operator’ – the ATO have confirmed that the term includes the entity/entities who ensure(s) performance of the drilling contract in satisfaction of the project specifications, coordinating both the MODU and highly skilled personnel;
  • confirmation that taxpayers do not need to apply the PCG where they have been awarded a ‘high assurance’ rating in relation to justified trust;
  • confirmation that the green zone (low risk) rating applies to entities with an EBIT margin of 10.5 percent (the draft version stated at least 10.5 percent); and
  • removal of the option for Simplified Record Keeping – taxpayers will be required to prepare full transfer pricing documentation in order to support their positions.

To continue reading this article, including the key elements of PCG 2020/1, please visit KPMG Tax Now.

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KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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