ATO raises concerns on multinational supply chains and intangible assets

The ATO has released advice that details our concerns about multinational taxpayers inappropriately pricing goods in their supply chains or mis-characterising intangible assets, with the ultimate effect of understating profits in Australia.

Deputy Commissioner Mark Konza said the recent Taxpayer Alert on the migration of intangible assets and Practical Compliance Guideline on inbound supply chains were another step in the ATO’s continuing focus on ensuring that multinationals are paying the right amount of tax in Australia.

“We have one of the strongest transfer pricing regulatory regimes in the world, and this advice is another clear signal to multinational groups doing business in Australia that clearly contrived arrangements will be dealt with.”

Taxpayer Alert on Intangibles Migration

The Taxpayer Alert is specifically aimed at groups who engage in operations that require the use or enjoyment of intangible assets developed, maintained, protected or owned in a foreign jurisdiction but fail to pay, or recognise payment of, an amount in the nature of a royalty for the purposes of Australia’s tax treaties and laws.

“Assets such as intellectual property, manufacturing knowhow, trademarks and brand need to be recognised, especially for those taxpayers where intangible assets make up a significant proportion of the inherent value of the goods sold in Australia.

“We’ve already commenced investigation of a number of arrangements that appear to not recognise valuable intangible assets, and the Taxpayer Alert provides clear notice of our intention to tackle these types of arrangements,” Mr Konza said.

Practical Compliance Guideline on Inbound Supply Chains

This guideline outlines our compliance approach to the transfer pricing outcomes associated with the following activities of inbound distributors:

  1. distributing goods purchased from related foreign entities for resale, and
  2. distributing digital products or services where the intellectual property in those products or services is owned by related foreign entities.

“This provides a clear picture of how the ATO will be assessing risk, using a ‘traffic light’ model that assists distributors to understand how we will be applying our resources, deal with areas of concern and move themselves into the ‘green zone’,” Mr Konza said.

If you have any questions or concerns relating to these advice products, please contact the ATO.