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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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