Key compliance risks for large corporate groups

The risks of non-compliance with large corporate groups and how we combat tax avoidance.

Last updated 1 October 2026

Non-compliance risks within large corporate groups

Because large corporate groups have complex business structures, there will always be a non-compliance risk in this population.

In most cases this will be the result of:

a difference in the interpretation of the law
an error in applying it to a taxpayer's particular circumstances.

However, a small number of large corporate groups will choose to deliberately avoid their tax obligations.

We focus on helping the majority who want to comply and providing assurance their tax payments are correct. We do this through our one-to-one prevention activities and population-wide approaches.

Where we do see deliberate attempts to avoid tax obligations, we act decisively to address these arrangements.

Our Findings report RTP – public and multinational businesses provides insights on the prevalence of key corporate tax risks in the large market.

International risks

Profit shifting

Increased globalisation has brought many benefits for countries, including increased economic growth. But it has also brought new challenges from the increasing share of global gross domestic product and trade attributable to multinational enterprises.

Companies no longer need to locate their operations close to customers or have fully integrated operations in a single location. Instead, there is increasing centralisation of functions regionally or globally with supply chains dispersed across countries.

The rise of the information and service economies, as well as advances in technology, have allowed multinational enterprises to place staff and operations in locations geographically distant from their customers. Some nations may also seek to attract investment by multinational enterprises by offering attractive tax rates and other incentives.

These factors have also allowed for tax planning that takes advantage of arbitrage opportunities to minimise global tax payments. For some multinational enterprises, this tax planning goes beyond acceptable bounds. That's why we have an increasingly strong focus on global profit shifting.

Related party debt

A key corporate tax avoidance tactic is the excessive allocation or pricing of debt into Australian companies. The transfer pricing, thin capitalisation, debt deduction creation rules and general anti-avoidance rules may apply to these schemes. Recent changes to the tax laws – to allow the transfer pricing rules to adjust debt quantum, to reform thin capitalisation and to introduce the debt deduction creation rules – target such debt arrangements.

We currently focus on the more prevalent forms of related party debt risks. We have:

warned taxpayers and their advisers of high-risk arrangements through our taxpayer alerts
provided guidance to assist taxpayers self-assess the tax risk of their related party financing arrangement and our likely compliance approach given that risk profile
undertaken litigation in the most serious cases.

For recent related practical compliance guidance and tax rulings, see:

PCG 2017/4 ATO compliance approach to taxation issues associated with cross-border related party financing arrangements and related transactions
TR 2025/2 Income tax: aspects of the third party debt test in Subdivision 820-EAB of the Income Tax Assessment Act 1997
PCG 2025/2 Restructures and the thin capitalisation and debt deduction creation rules – ATO compliance approach
Draft PCG 2025/D2 Factors to consider when determining the amount of your inbound, cross-border related party financing arrangement – ATO compliance approach

Offshore service hubs

Some multinational enterprises use centralised operating models, often referred to as hubs, to undertake various activities. These arrangements are usually based on commercial considerations but sometimes the tax treatment may not be appropriate.

We issued a practical compliance guideline to assist taxpayers to manage the risks and costs associated with hubs. Two schedules in the PCG cover marketing and procurement hubs.

For more information, see Practical Compliance Guideline PCG 2017/1 ATO compliance approach to transfer pricing issues related to centralised operating models involving procurement, marketing, sales and distribution functions.

Inbound supply chains

Appropriate profit being recognised in Australia

Many multinational businesses operate their Australian operations through subsidiaries. They may use these subsidiaries to buy goods or services manufactured or originated offshore from their offshore parent or related companies and on-sell to Australians.

The key tax question is whether the price paid for those goods or services is an appropriate price under the law. Determining this can be particularly difficult when the goods or services have unique features. This can be difficult even for taxpayers trying to do the right thing.

Looking at the entire supply chain through a variety of lenses helps to determine if the pricing is giving sensible or distorted results. It can help clarify if the appropriate profit is being recognised in Australia.

In March 2019, we published Practical Compliance Guideline PCG 2019/1 Transfer pricing issues related to inbound distribution arrangements, outlining our compliance approach. The PCG includes industry-specific schedules to provide more detailed guidance.

Example: Australia inbound supply chains – determining if appropriate profits are recognised

USA headquartered BrownGoodsCo is a worldwide electronic goods company. It undertakes significant research and development activities in its home jurisdiction. This is to develop new electronic goods and market its products. The worldwide profits of BrownGoodsCo are $12 billion on global sales of $60 billion. This gives an implied profit to sales ratio of 20%.

BrownGoodsCo establishes a wholly owned subsidiary company, BGAus Ltd, in Australia. BGAus undertakes sales and distribution activities in Australia. It purchases the goods from offshore related parties located in low tax jurisdictions, and on-sells them. It also provides significant after-sales support in relation to its products.

Sales of BrownGoodsCo products in Australia are $2 billion. After paying $1.8 billion for the products, BGAus has $105 million in other costs, mostly salary, leasing and similar. BGAus makes an accounting profit of $95 million on its business operations in Australia. BGAus reports these profits in its Australian income tax return.

BGAus reports a taxable income of $100 million and pays income tax of $30 million. The difference to the accounting profit relates to employee-related expenses (such as annual leave and long service leave), which are only deductible when paid out.

For accounting purposes, BGAus reports a tax expense of $28.5 million, an effective tax rate of 30%. It recognises a deferred tax benefit of $1.5 million for the deduction it will receive when it actually pays the leave costs.

Overall, their tax expense is $30 million (or $28.5 million for accounts) against $2 billion in sales. This looks low at 1.5% of sales.

The key tax issue is whether the $1.8 billion paid by BGAus to BrownGoodsCo for the goods is an appropriate arm's length price. In judging the risk of ‘transfer mispricing’, we will look at factors such as the:

margin on local costs – the profit of $95 million on local costs of $105 million should be evaluated using appropriate benchmarks taking into consideration the functions being performed in Australia
profitability of the local operations compared with the entire supply chain. That is, BGAus is booking $95 million of profit compared with an estimated whole of supply chain profit of $400 million (assuming Australian supply chain profit ratios align with global profitability).
motivation to transfer misprice – there is a higher motivation to misprice, as significant profits are being booked in a low tax jurisdiction.

Overall, the appropriateness of the transfer price of the goods needs to evaluated against the factual circumstance and the comparable benchmarks. The booking of significant profits in a low tax jurisdiction is likely to raise risk indicators which may result in a review of the transfer pricing of BGAus.

Note: The local effective tax rate of BGAus doesn't provide any guidance as to whether there is ‘transfer mispricing’, as any mispricing will affect its profit as well as the tax. On the other hand, simply focusing on cash tax versus gross sales won't reflect the degree of support provided by the Australian operations versus the rest of the global supply chain.

End of example

See our Practical Compliance Guideline PCG 2019/1 Transfer pricing issues related to inbound distribution arrangements.

Intangibles arrangements

Intangible assets, including but not limited to intellectual property, are highly mobile assets.

Australian tax advantages may be inappropriately obtained in connection with arrangements involving intangible assets, or the rights to use intangible assets. The risk includes tax advantages obtained in connection with non-arm’s length or contrived arrangements that:

migrate or artificially allocate to offshore related parties intangible assets which were created in, or are mainly connected to, Australia in order to reduce or avoid Australian income tax
mischaracterise cross-border payments in respect of intangible assets to reduce or avoid Australian royalty withholding tax.

Intangible assets, particularly ‘hard to value’ intangibles, may have special or unique characteristics. These complicate the search for comparable transactions and make market prices difficult to determine at the time of the transaction. Consider OECD public guidance, in particular, BEPS Action 8: Implementation guidance on hard-to-value intangiblesExternal Link.

We have issued the below advice and guidance to taxpayers and their advisors of our concerns with intangibles arrangements:

TA 2018/2 Mischaracterisation of activities or payments in connection with intangible assets
TA 2020/1 Non-arm's length arrangements and schemes connected with the development, enhancement, maintenance, protection and exploitation of intangible assets
PCG 2024/1 Intangibles migration arrangement
TR 2026/2 Income tax: royalties - character of payments in respect of software and intellectual property rights
PCG 2026/D4 Royalty characterisation of payments relating to intermediation or distribution arrangements – ATO compliance approach.

Example: Migration of intellectual property

A foreign-owned Australian company (AusCo) holds internally generated patents that have not yet been commercialised. AusCo assigns the patents to a foreign subsidiary of its foreign parent (ForCo) for an amount less than the cost of development. ForCo then licenses the use of the patents back to AusCo.

AusCo continues to carry out R&D activities in connection with the patents and enters into a contract with ForCo. Under the contract:

AusCo’s R&D activities are treated as services provided by AusCo to ForCo
ForCo owns any patents or other intellectual property resulting from AusCo’s R&D activities.

For Australian tax purposes, AusCo:

claims a capital loss from the assignment of the patents to ForCo
claims deductions for the licence fees payable by AusCo to ForCo under the licence back of the patents to AusCo
does not withhold royalty withholding tax on these licence fees
only returns the compensation for its activities payable by ForCo under the contract.

We're concerned that:

the assignment of the patents by AusCo and their licence back were not arm’s length dealings or were undertaken for the purpose of obtaining an Australian tax benefit
AusCo may not be returning adequate compensation from ForCo for
- the R&D activities it conducts under the contract for ForCo’s benefit
- other activities which preserve or develop the patents or other intellectual property
AusCo has incorrectly not withheld tax on its royalty payments
the amount of Australian tax paid by AusCo since the arrangement with ForCo was put in place is not commensurate with the economic activity undertaken by AusCo in Australia
the general anti-avoidance provisions may potentially apply.

End of example

Foreign resident disposal of Australian property

We're concerned about foreign residents who obtain a tax benefit or avoid Australian tax obligations when they dispose of Australian property, including property with a close economic connection to Australian land and natural resources. We want to ensure asset characterisation, classifications and valuations are consistent with legal requirements. For example, gains made from the sale of taxable Australian property (and related assets) should be taxed in Australia. Some schemes seek to shift or attribute value to non-taxable Australian real property assets to escape taxation.

Domestic risks

Re-characterisation of income from trading enterprises

We're concerned with arrangements that seek to divert and re-characterise business trading income into concessionally-taxed passive income flows.

This may involve a single business being divided into separate enterprises. We've issued Taxpayer Alert TA 2017/1 Re-characterisation of income from trading businesses about our concerns.

Legislative amendments have addressed some of these concerns by:

applying a 30% withholding tax on most trading income converted to passive income via a stapled structure or distributed by a trading trust, and income from agricultural land and residential housing
amending the thin capitalisation rules to prevent foreign investors using double gearing structures to convert active business income to more favourably taxed interest income
limiting existing tax exemptions for foreign pension funds and sovereign wealth funds to passive income and portfolio investments only.

The legislative amendments don't cover all the arrangements we have outlined in our taxpayer alert. We continue to look closely at these other types of arrangements and will take compliance action where we consider an arrangement poses a compliance risk.

As outlined in our infrastructure and stapled structures page, we are reviewing transitional elections made under the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 (Stapled Structures Act). We are also considering any restructures of stapled structures, noting the end of transitional relief period (generally 30 June 2026 for 7-year elections where the facility to which the cross staple arrangement relates to is not an economic infrastructure facility).

Relevant LRCs include LCR 2020/2 Non-concessional MIT income.

Find out more about stapled structures.

Research and development

The research and development (R&D) tax incentive program is administered jointly between Department of Industry, Science and Resources and the ATO.

As part of the co-administration, we developed a joint risk strategy to cover particular activities of concern. These include claims attributing business-as-usual nature expenses to eligible R&D activities and claiming R&D incentives for software development.

We focus on incorrect claims in the building and construction, agriculture and mining industries. The strategy also highlights some R&D consultants as potential contributors to the risk.

We issued the following taxpayer alerts, jointly with Department of Industry, Science and Resources , outlining our concerns with specific arrangements:

TA 2017/2 Claiming the Research and Development Tax Incentive for construction activities
TA 2017/3 Claiming the Research and Development Tax Incentive for ordinary business activities
TA 2017/4 Claiming the Research and Development Tax Incentive for agricultural activities
TA 2017/5 Claiming the Research and Development Tax Incentive for software development activities
TA 2023/4 Research and development activities delivered by associated entities
TA 2023/5 Research and development activities conducted overseas for foreign related entities

Property and construction activities of large private groups

Property and construction is a significant industry in the Australian economy. There has been strong growth in some property markets.

Despite this, there is low tax performance and higher tax debts and insolvency rates than other industry segments. This has led us to take an industry-wide approach to risks in the segment for large private groups.

Group structuring and business events

Significant business events attract our attention. These may be mergers and acquisitions, divestments of major assets and demergers, capital raisings and returns of capital. The structure of groups and changes that occur in those structures can present significant tax issues.

We issued Taxpayer Alert 2020/4 on the use of multiple entry consolidated groups to avoid Australian tax through the transfer of assets to an Eligible Tier-1 company prior to disposal.

For more information, see Corporate restructures involving acquisitions or disposals.

Succession planning and large private groups

We focus on large private groups that incorrectly recognise the tax consequences of transactions or structure to minimise or avoid tax as a result succession planning activity. It is important to have a sound tax governance framework to manage tax issues.

For more information see, Succession planning.

Combating corporate tax avoidance

Tax Avoidance Taskforce

We resolutely tackle tax avoidance by multinational enterprises, large public and private groups, and highly wealthy individuals and their advisers. The government funding of the Tax Avoidance Taskforce provides more investment in this work to improve and expand our outcomes.

The Tax Avoidance Taskforce has a strong focus on the Top 100 and Top 1,000 public and multinational businesses, the Top 500 privately owned groups and high-wealth private groups. This is our most significant compliance program and has exceeded its revenue commitments.

The Tax Avoidance Taskforce has been expanded to include the Private Capital Program. The program broadly covers the inbound private capital market, with particular focus on inbound private equity, infrastructure and foreign funds populations, as well as Australian investment structures via managed investment trusts. This program drives a holistic approach to the treatment of risks across the private capital investment lifecycle, from pre-acquisition through to exit. While tax risk on exit remains a key issue for the program, it is also intensifying its focus on inappropriate acquisition structuring and profit shifting throughout the investment lifecycle.

Recent cases

Several court cases reinforce our commitment to addressing tax avoidance and arrangements that seek to stretch the bounds of acceptable tax planning through the courts, where necessary. This includes taking appropriate action against advisers who seek to promote tax avoidance schemes.

We also litigate in cases where a contentious or uncertain point of law requires clarification – it's in the public interest to seek law clarification through litigation.

YTL Power Investments Ltd v Commissioner of Taxation [2025] FCA 1317 questioned whether a foreign resident taxpayer could disregard a capital gain on the disposal of shares. The case focused on whether electricity transmission infrastructure constituted taxable Australian real property. The Federal Court found that, having regard to the relevant South Australian statutory regime, the infrastructure assets were not taxable Australian real property. The Commissioner has appealed the decision to the Full Federal Court.

Newmont Canada FN Holdings ULC v Commissioner of Taxation (No 2) [2025] FCA 1356 was concerned with whether a foreign resident taxpayer could disregard a capital gain arising from a group reorganisation. The case concerned whether mining plant and equipment constituted taxable Australian real property and the valuation of mining assets. The Federal Court held that the mining plant and equipment was not taxable Australian real property. The Court considered a range of valuation issues and referred aspects of the valuation process to a referee for determination before making final orders.

Tabcorp Maxgaming Holding Limited v Commissioner of Taxation [2025] FCA 115 raised the question of whether the taxpayer was entitled to a deduction for a financial arrangement loss for part or all payments made under Victoria gambling legislation related to various licenses and authorities. The court found the termination of the taxpayers gaming licenses in Victoria did not create a financial arrangement subject to the Taxation of Financial Arrangements (TOFA) rules and the appeal was dismissed. The taxpayer has appealed to the Full Federal Court. The Full Federal Court dismissed the taxpayer's appeal. The taxpayer has applied for special leave to appeal to the High Court of Australia.

In Alcoa of Australia v Commissioner of Taxation [2025] ARTA 482 the case concerned whether the taxpayer received less than arm's length consideration in relation to supplies of alumina to an offshore smelter through intermediaries under the former transfer pricing provisions. The Administrative Review Tribunal (ART) decision favoured the taxpayer, finding the dealings were at arm's length.

Ausnet Services Limited v Commissioner of Taxation [2025] FCAFC 21 questioned whether a valid rollover election was made with respect to a restructure involving a stapled group. The taxpayer made an appeal to the Full Federal Court which was dismissed. The taxpayer applied for special leave to appeal to the High Court of Australia which was refused.

In Merchant v Commissioner of Taxation [2024] FCAFC 56, the issue was whether the general anti-avoidance rule applies to deny a tax benefit where company profits were reduced through debt forgiveness to another company. The Full Federal Court allowed the taxpayer's appeal in part. The Commissioner and the taxpayer have both applied for special leave to appeal to the High Court of Australia. The High Court of Australia granted both the Commissioner's and the taxpayers' applications for special leave to appeal.

In Singapore Telecom Australia Investments Pty Ltd v Commissioner of Taxation [2024] HCAtrans 74 the question was whether the lending arrangements between the taxpayer and an offshore related entity gave rise to a transfer pricing benefit. The Court handed down a decision favourable to the Commissioner. The taxpayer applied for special leave to appeal to the High Court of Australia which was refused by the Court.

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