The Australian Taxation Office released the new 2024 Reportable Tax Positions (RTP) Schedule last week and, as we indicated in our previous article here, there are new questions within the RTP that continue the ATO's focus on intangibles migration and Australian development, enhancement, maintenance, protection and exploitation (DEMPE) activities per Practical Compliance Guideline PCG 2024/1, highlighting transfer pricing and anti-avoidance considerations in particular.
New questions to be considered as part of the corporate tax return
The ATO has introduced two new questions in the 2024 RTP Schedule focusing on international related party intangibles migration arrangements (IMAs). These new questions aim to provide the ATO with additional disclosure around taxpayers' IMAs and risk assessment of these arrangements. The ATO's guide on these can be found here.
Question 44 requires taxpayers to disclose the risk assessment ratings for any IMAs where a migration of intangible assets occurred within the current income year, as per the ATO's Risk Assessment Framework Table 1. Migrations in this context includes both the transfer or sale of intangibles, as well as entering into new outbound license arrangements or otherwise making Australian intangible assets available for use by offshore parties. At a minimum, taxpayers must disclose the ratings for the top three most material migrations, but may need to disclose additional ratings if other arrangements have higher risk profiles.
Taxpayers will also need to provide comments summarising each arrangement, including details of the intangible assets involved and any key connected DEMPE activities undertaken in Australia. This seeks to identify any continuation of substantive activities by Australian entities postmigration, which is considered to be a key risk, especially in relation to the commercial rationale and the pre/post substance of the arrangements.
Question 45 looks back over the past five years, requiring disclosure of any prior IMAs involving intangible migrations. While risk ratings do not need to be reported, taxpayers must include comments outlining both the past migration(s) and any current connected IMAs. There are no limitations on the number of arrangements to be disclosed under this question.
A RTP Schedule is required to be filed with the tax return where total business income is:
- $250 million or more in the current year; or
- $25 million or more in the current year and part of an economic group with a total business income of $250 million or more in the current year
The Risk Assessment Framework Table 1 (RAF Table 1) is a tool provided by the ATO in PCG 2024/1 on intangibles migration arrangements.
RAF Table 1 contains 11 risk factors that taxpayers should consider when evaluating their IMAs. These relate to factors like the business activities transferred, pricing methodology used, financial capacity of parties involved and whether DEMPE activities remain in Australia.
For each applicable risk factor, taxpayers assign a risk rating of either:
- Low
- Medium
- High
The overall risk rating for the IMA is determined by the highest individual risk factor rating.
For example, if eight factors are rated low risk but three are rated medium, the overall IMA risk would be medium.
Question 44 in the RTP specifically requires taxpayers to disclose the risk ratings determined under RAF Table 1 for their most material IMAs involving intangible migrations in the current income year.
This aims to provide transparency to the ATO around taxpayers' own risk assessments of their IMAs. Higher risk ratings could indicate the potential for transfer pricing noncompliance that may warrant further ATO scrutiny.
Key Takeaways:
- Taxpayers must carefully assess all IMAs to determine RTP reporting requirements
- Substantive activities by Australian entities postmigration will be a focus area for the ATO
- Disclosure of multiple arrangements may be required even where not considered most material
The new questions indicate the ATO's continued scrutiny of transfer pricing risks around intangible migrations. Taxpayers should carefully evaluate their IMAs to ensure appropriate disclosure in the 2024 RTP. Proper documentation will also help address any potential ATO compliance activities in this area.
A&M has the team and the expertise to assist taxpayers with their assessment of the PCG as well as the compliance requirements of the RTP. Contact our team today to help address the complexity of these requirements.
Originally published by 19 April, 2024
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
