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Australia: Transfer pricing ATO internal distributor risk guidance, initial impressions

Australia: Transfer pricing internal distributor risk

The Australian Taxation Office (ATO) release new guidance outlining its compliance approach to "inbound" Australian distributors.

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The draft guidance (PCG 2018/D8) outlines the ATO's approach to risk rating based on profit level and functional factors for Australian inbound distributors and at what profit levels the ATO may dedicate resources to investigate further the transfer pricing arrangements.

The ATO has divided inbound distributors into four key industry categories: 

  • Life science (including pharmaceuticals) 
  • Information and communication technology 
  • Motor vehicles 
  • A "catch all" general distributor category

The life sciences industry is further divided into three categories, and the information and communication technology industry is divided into two categories.

KPMG observation

The PCG is a "game changer," and combined with a number of other major initiatives introduced by the ATO, represents a clear and distinct shift in how the ATO will view the transfer pricing arrangements of inbound distributors and the initial profit expectations that the ATO may have when initiating compliance activity.

 

Read a November 2018 report [PDF 189 KB] prepared by the KPMG member firm in Australia

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