On 13 March 2019, the Australian Taxation Office (ATO) published Practical Compliance Guideline (PCG) 2019/1, which outlines the ATO's compliance approach to the transfer pricing outcomes associated with the following activities of inbound distributors:
This includes a framework that can be used by taxpayers to:
The guideline provides that the transfer pricing risk of inbound distribution arrangements is assessed by comparing the profit outcome of the arrangements against the ATO's profit markers for inbound distributors. For this purpose, the profit outcome of inbound distribution arrangements is analyzed using Earnings Before Interest and Tax (EBIT) relative to sales, which is considered to provide a reasonable basis for the ATO to identify transfer pricing risks for inbound distribution arrangements.
The profit markers (EBIT margins) and risk assessment (high, medium, low) are provided in the schedules to the guideline and include:
PCG 2019/1 applies from 13 March 2019, including for existing and new inbound distribution arrangements.
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