On 16 January 2017, the Australian Taxation Office (ATO) issued a Practical Compliance Guideline which sets out the ATO’s compliance approach to transfer pricing issues related to the location and relocation of certain business activities and operating risks into a centralized operating model.
The aim of the practical compliance guideline is to assist taxpayers to assess the compliance risk of the transfer pricing outcomes for overseas related-party hubs in accordance with the ATO’s risk framework, understand the compliance approach, understand the options available to reduce the transfer pricing risk for a hub and understand what the ATO will be looking for when they review a hub.
The practical compliance guideline assigns hub arrangements one of six different transfer pricing risk categories:
- White zone -self-assessment of risk rating unnecessary
- Green zone – low risk
- Blue zone – low to moderate risk
- Yellow zone – moderate to high risk
- Amber zone – high risk, and
- Red zone – very high risk.