Taxpayer Alert – Thin capitalisation and inappropriate recognition and revaluation of internally generated intangible assets
International profit shifting arrangements are attracting our attention. Manipulation of the thin capitalisation rules is one way companies are avoiding their obligations.
Read our Taxpayer Alert if you have entered into, or plan on entering into, such an arrangement.
Entities are making choices to inappropriately recognise and value (or revalue) internally generated intangible items as assets for thin capitalisation purposes. We consider such choices fall outside the scope of the modifications dealing with internally generated intangible assets and do not comply with the recognition criteria contained in the relevant accounting standards.
Some of the arrangements we are focusing on include:
- generic material such as internal policies, internal meeting protocols and procedures being valued
- the application of unsupportable or questionable management assumptions from an asset revaluation perspective
- the double counting of the same value across multiple intangibles items
- entities not impairing assets where the fair value or the cash generating unit has declined.
What we’re doing
We are reviewing these arrangements. In some instances, compliance activities are now underway with cases identified from data analysis including tax returns and the international dealings schedule.
What you can do
You can obtain more detailed information about these types of arrangements and our concerns by reading the Taxpayer Alert.
We recommend you seek independent advice, review your arrangement or discuss your situation with us by emailing PGIAdvice@ato.gov.au