• In focus: Offshore marketing hubs

    The ATO is developing a practical guide to help taxpayers self-assess their transfer pricing activity in respect to related party offshore marketing hubs.

    In 2013, Australia introduced new self-executing transfer pricing provisions. Under these provisions, taxpayers are required to self-assess whether they have obtained a transfer pricing benefit from their marketing hub arrangement.

    Typically, marketing hubs 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. Marketing hub arrangements can give rise to significant profit shifting issues for the Australian entities involved.

    What are we doing?

    We are committed to providing taxpayers with ways to mitigate their risk and help them with self-assessment and compliance. We will be developing a practical guide so taxpayers can assess the compliance risk associated with their marketing hub arrangements.

    We will consult with interested parties from August to develop and issue the guide. It will aim to provide practical information for taxpayers including framing questions and quantitative indicators ('risk flags') that taxpayers should consider when assessing their level of compliance risk.

    We are also reviewing a number of hub arrangements. In examining the economic substance of these arrangements, we are considering:

    • all of the facts and circumstances, such as the economic and commercial context of the arrangement
    • the hub's object and effect, from a practical and business point of view
    • the conduct of all parties, including the functions performed, assets used and risks assumed by each of them
    • whether independent parties operating in comparable circumstances would enter into similar arrangements.

    What is our concern?

    In some circumstances it appears the amount charged by the marketing hub to the Australian company is not what arm’s length (or independent) parties would pay.

    In particular, we are concerned that:

    • the economic substance of these arrangements may be materially different to the associated legal form
    • the pricing for the functions performed, assets used and risks assumed in a marketing hub do not reflect conditions that would operate between independent entities dealing wholly independently with one another in comparable circumstances.

    Where that is the case, the transfer pricing provisions will apply to substitute arm’s length conditions.

    While transfer pricing is often the primary compliance issue, our inquiries are not limited to an examination of these issues. Other provisions, including the capital gains tax, controlled foreign companies and the general anti-avoidance provisions, may also be relevant.

    What should you do?

    If you have entered into, or are contemplating entering into, an arrangement of this type, we recommend you review the arrangement and assess your compliance with the transfer pricing rules. If you have any of the hallmarks discussed above or have concerns about the risk profile of the arrangement you should:

    Once available the practical guidance will assist you in assessing your level of compliance risk.

    Get it done

    If you would like to be involved in the consultation process contact us at offshorehubs@ato.gov.au.

    End of get it done
      Last modified: 08 Jul 2015QC 46235