News Share

The Tax Hub

Daily Tax Newsletter

Australia

Responsive image

Australia Publishes Final Compliance Guideline on Transfer Pricing Issues Related to Inbound Distribution Arrangements

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:

  • Distributing goods purchased from related foreign entities for resale; and
  • Distributing digital products or services where the intellectual property in those products or services is owned by related foreign entities.

This includes a framework that can be used by taxpayers to:

  • Assess the transfer pricing risk of their inbound distribution arrangements;
  • Understand the compliance approach the ATO is likely to adopt given the transfer pricing risk profile of their inbound distribution arrangements;
  • Work with the ATO to mitigate the transfer pricing risk of their inbound distribution arrangements and be confident that the risk exposure has been reduced; and
  • Understand the type of analysis the ATO uses when assessing the transfer pricing risk of their inbound distribution arrangements.

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:

  • For general distributors - above 5.3% is considered low risk and below 2.1% is considered high risk;
  • For the life science industry sector, the risk assessment depends on the activities that incrementally generate value, which includes:
    • Detailing and marketing activities and/or logistics and warehousing functions - above 5.1% is considered low risk and below 3.6% is considered high risk;
    • The above activities plus regulatory approval, market access, or government reimbursement activities - above 8.9% is considered low risk and below 5.5% is considered high risk;
    • The above activities plus specialized technical services activities - above 10.0% is considered low risk and below 7.0% is considered high risk;
  • For the information and communication technology (ICT) industry sector, the risk assessment depends on the activities that incrementally generate value, which includes:
    • Sales and marketing activities, pre and/or post-sales services, and/or logistics and warehousing functions - above 4.1% is considered low risk and below 3.5% is considered high risk;
    • The above activities plus complex sales processes, direct selling activities, and/or large customer relationship management - above 5.4% is considered low risk and below 4.1% is considered high risk;
  • For the motor vehicles industry sector - above 4.3% is considered low risk and below 2.0% is considered high risk.

PCG 2019/1 applies from 13 March 2019, including for existing and new inbound distribution arrangements.

Powerful Tax Tools

NEW

FX Rates

Global FX Rates including Tax Year Average FX Rates and Spot Rates for all Reporting Currencies.

NEW

Corporate Tax Rates

Corporate tax rates, surtaxes, and effective tax rates for the current year, as well as historical rates and approved future rates.

NEW

Country Analysis

Detailed tax guidance for companies doing business in over 100 countries, including summaries and snapshots of key tax facts and issues.

NEW

Cross Border Tax Calculator

Calculate total tax costs and benefits of a cross border transaction including withholding tax, participation exemption and foreign tax credit rules.

NEW

Cross Border Tax Rates

Provides Domestic, treaty and EU cross border tax rates for over 5,000 country combinations for 9 different payment streams.

NEW

OECD BEPS Project

Complete overview of the OECD BEPS Project, including daily BEPS news, country adoption of BEPS measures, and an overview of the 15 BEPS Actions.

NEW

Tax Calendar

Customizable calendar tool that tracks corporate income tax, value added tax and transfer pricing obligations by country or entity.

NEW

Tax Forms

English translations of key tax forms for over 80 countries, including tax return forms, treaty benefit forms, withholding tax forms, and more.

NEW

Worldwide Tax Treaties

Repository including thousands of tax treaties (in English), OECD, UN and US Models, relevant EU Directives, Technical Explanations, and more.

NEW

Worldwide Tax Planner

Calculates the worldwide tax cost of what-if scenarios based on legal entity structure, taxable income, and cross border transactions.

NEW

Certified Rates Report

Customizable Certified Rates Report providing updated corporate and withholding tax rates at the end of each month for over 100 countries.

NEW

Withholding Tax Minimizer

Enables quick calculation of tax costs and benefits of cross border transactions considering all possible transaction combinations and optimal routes.

NEW

VAT Rates

Provides value added tax (VAT) rates, goods and services tax (GST) rates and other indirect tax rates for over 100 countries.

NEW

NOL Calculator

Country specific calculator to determine how net operating losses can be utilized in carryback and carryforward years.

NEW

Transfer Pricing Calculator

Calculates TP ratios under various TP methods and calculates the difference between target ratios and actual ratios.

NEW

Individual Income Tax Rates

Individual tax rates for over 100 countries.

Play of the Day

Worldwide Tax Treaties

Repository including thousands of tax treaties (in English), OECD, UN and US Models, relevant EU Directives, Technical Explanations, and more.

We’re here to help

We’re here to answer any questions you have about the Orbitax products and services.

Send us a message

Who’s behind Orbitax?

We’re committed to providing high value, low cost tax research and management solutions.

Learn More