On January 18, 2017 the Australian Taxation Office (ATO) published a practical compliance guideline for offshore hubs (PCG 2017/1). The guideline sets out the ATO’s compliance approach to transfer pricing issues related to centralised operating models, often called ‘hubs’.
According to the ATO, the PCG will enable taxpayers to:
· understand ATO’s compliance approach and thereby helping taxpayers to self-assess the risk that their hub arrangement(s) will be examined further by the ATO;
· understand their disclosure obligations, including on the Reportable Tax Position (RTP).
The PCG also includes guidance to assist taxpayers in preparing transfer pricing documentation. It will also help taxpayers with understanding the type of analysis and evidence ATO is likely to request in a compliance review.
According to the ATO, the PCG applies to income years commencing on or after January 1, 2017. The ATO furthermore informs the public that at this stage, a risk benchmark has been included for offshore marketing hubs only. It's intended risk benchmarks for other types of hubs will be added at a later stage.
The PCG discusses a.o. the following topics:
· Date of effect
PART A: THE HUB RISK FRAMEWORK
· The business models
· The ATO's role
· The ATO's compliance approach
· THE HUB RISK ASSESSMENT FRAMEWORK
o Do you need to self-assess your risk rating?
o How to work out if you are in the green zone
o Outside of the green zone - Additional risk indicators
o Determining your base rating
§ Calculating the tax impact
§ Unable to apply the ATO risk methodology or calculate the tax impact
o Adjusting the base rating
§ Transfer pricing analysis and supporting documentation
o How to decrease your risk rating
o Transitioning existing arrangements to the green zone
o Reporting your risk rating
· OUTCOMES OF YOUR RISK RATING
o What you can expect if you are in the green zone
o Limited compliance activity
o Simplified record keeping
o APA program if within the green zone
o What to expect if your arrangement is outside of the green zone
o Disclosure requirements
o Review and audit proceedings
§ What you can expect from our compliance activities
o Options for resolving disputes
§ Resolving hub issues outside of litigation
§ Litigation
PART B: GUIDANCE FOR PREPARING YOUR TRANSFER PRICING ANALYSIS
· Preparing your transfer pricing analysis - Areas of focus
· Testing and evidencing the outcomes of your hub
· Current compliance hot spots
· Use of third party commission rates
· Testing transfer prices - using alternative PLIs
· Failure to revisit the price setting mechanism in response to significant changes in the external environment
· Liquefied natural gas
· Who to contact
SCHEDULE 1 - OFFSHORE MARKETING HUB ARRANGEMENTS
· Do you have an offshore marketing hub?
· Date of effect
· The low risk benchmark
o Calculating cost and hub profit
· Full CFC attribution - move to the green zone
· Outside of the green zone - How to calculate the tax impact of your hub
The PCG contains 1 attachment with in it an offshore marketing hub risk assessment framework diagram.
Click here to be forwarded to the practical compliance guideline for offshore hubs (PCG 2017/1) as published by the ATO on January 18, 2017.
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