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The Australian Taxation Office (ATO) has said that it is concerned that certain related-party offshore marketing hub arrangements may be in breach of transfer pricing rules.
Marketing hubs typically provide marketing and sales functions for goods or commodities produced in Australia and sold offshore. These functions may include price negotiation, contract administration and management, customer relations, shipping, and delivery.
The ATO said that these arrangements can give rise to significant profit shifting issues for the Australian entities involved.
The ATO is reviewing a number of hub arrangements. It explained that in some circumstances it appears that the amount charged by the marketing hub to the Australian company is not what arm's length parties would pay.
In particular, it is concerned that the economic substance of these arrangements may be materially different to the associated legal form, and that the pricing for the functions performed, assets used, and risks assumed in the hub do not reflect conditions that would operate between independent entities dealing independently with one another in comparable circumstances.
Where this is the case, the transfer pricing rules would apply to substitute arm's length conditions, the ATO said.
In these cases, the ATO is considering the economic and commercial context of the arrangements, the hub's object and effect, the conduct of all parties, and whether independent parties operating in comparable circumstances would enter into similar arrangements.
The ATO advised that companies that have entered into, or are contemplating entering into, an arrangement of this type review the arrangement and assess their compliance with the transfer pricing rules.
In addition to the review, the ATO is developing a practical guide to help taxpayers asses the compliance risks associated with such arrangements. Under rules introduced in 2013, taxpayers are required to self-assess whether they have obtained a transfer pricing benefit from their marketing hub arrangement.
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