Australia: Draft compliance guideline, transfer pricing and international arrangements involving intangible assets

ATO to focus on tax risks and application of transfer pricing provisions

ATO to focus on tax risks and application of transfer pricing provisions

The Australian Taxation Office (ATO) today released a draft practical compliance guideline regarding international arrangements connected with intangible assets.

The draft practical compliance guideline—PCG 2021/D4—sets out the ATO’s compliance approach to international arrangements connected with the development, enhancement, maintenance, protection, and exploitation (DEMPE) of intangible assets and/or involving a “migration” of intangible assets. [Migration refers to any transaction or transactions that allow an offshore party to access, hold, use, transfer or obtain benefits in connection with intangible assets and/or associated rights.]

  • The draft guideline applies to intangibles arrangements and focuses on tax risks associated with the potential application of the transfer pricing provisions; focuses on other tax risks that may be associated with intangibles arrangements—specifically the withholding tax provisions, capital gains tax (CGT), capital allowances, the general anti-avoidance rule (GAAR), and the diverted profits tax (DPT). These tax risks are relevant to the ATO’s compliance approach.
  • The draft guideline has been prepared to accompany the release and publication of Taxpayer Alerts TA 2018/2 Mischaracterisation of activities or payments in connection with intangible assets and TA 2020/1 Non-arm's length arrangements and schemes connected with the development, enhancement, maintenance, protection and exploitation of intangible assets.
  • The draft guideline states there is no intention to limit, deter or prevent arm's length dealings involving intangible assets, but that the goal is for the guidelines to serve as a point of reference and assist taxpayers to understand arrangements that the ATO views as representing a higher risk from a compliance perspective.
  • The ATO intends to use the framework set out in the guideline to assess the compliance risks associated with intangible arrangements and to tailor the ATO engagement with taxpayers.
  • Taxpayers can use the framework set out in the guideline to understand:
    • Compliance risks that may be presented by intangibles arrangements
    • The type of analysis that the ATO will undertake to assess compliance risks, and the documents and evidence that taxpayers are expected to have and maintain to substantiate the intangibles arrangements
    • The level of engagement the ATO would generally expect from taxpayers based on an assessment of the compliance risks of the intangibles arrangements
    • How taxpayers can work with the ATO to mitigate any compliance risks in relation to the intangibles arrangements
  • The draft guideline states that its application will allow the ATO to differentiate risk and prioritise its compliance resources and to outline the ways in which the ATO is likely to engage with taxpayers based on the level of risk of intangibles arrangements.

For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services in Australia:

Frank Putrino | +61 3 9838 4269 |



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