Australian Taxation Office issues compliance guidelines on Intangible Arrangements

At a glance

• The PCG increases the analysis and documentation expected by the ATO for intangible arrangements

• Taxpayers should carefully review their Intangible Arrangements and supporting documentation

• The PCG does not go further and address issues in relation to how Intangible Arrangements should be remunerated, priced or benchmarked

• How EY can help

On 19 May 2021, the ATO released a draft transfer pricing Practical Compliance Guideline (PCG 2021/D4) covering Intangible Arrangements.

The PCG outlines the ATO’s compliance approach and a range of risk factors relating to Intangible Arrangements including arrangements involving the development, enhancement, maintenance, protection and exploitation (DEMPE) of intangible assets as well as addressing the situation where intangible assets are migrated offshore. Similar to the other transfer pricing focused PCGs, the ATOs risk assessment framework identifies three risk categories (i.e. low, medium and high risk) for Intangible Arrangements based on various risk factors and the level of supporting documentation.

A key outcome of the PCG is the increased analysis and supporting evidence expected by the ATO when analysing Intangible Arrangements. Despite the increased guidance covering the types of documentation that should be considered, the PCG does not go further and address how Intangible Arrangements should be remunerated, priced or benchmarked.

Our Tax Alert contains a more comprehensive summary and notes that the draft PCG anticipates a retrospective application as the ATO indicates that it will “apply both before and after its date of issue”. It is also expected that once the PCG is finalised, taxpayers will be required to complete a Reportable Tax Position (RTP) to disclose the risk rating for their Intangible Arrangements.

To discuss these issues and possible action steps please contact your engagement team or contacts listed in the Tax Alert.