The ATO has issued a draft update to refine transfer pricing risk guidance for inbound distributors, expanding industry-specific profit markers, clarifying scope and RTP reporting through a new “white zone”.
The Australian Taxation Office (ATO) has initiated a consultation on a draft update to Practical Compliance Guideline PCG 2019/1, concerning transfer pricing considerations for inbound distribution arrangements.
This includes updated profit marker guidance – specifically for the Life Science and Information and Communication Technology industries, reflecting current benchmarking to assess transfer pricing risk for inbound distribution arrangements.
The updates also clarify the scope of the application of the PCG and Reportable tax position (RTP) reporting by introducing a white zone for certain taxpayers – the white zone category will apply to certain taxpayers, for example, those with a signed advance pricing arrangement (APA) or a recent high assurance rating.
The update to this PCG also contains a definition of inbound distributors in relation to tangible goods and digital products, and clarifies the scope of what will not be risk assessed under the PCG by explicitly excluding certain arrangements from the application of the PCG.
The consultation is set to conclude on 13 February 2026.
Draft Practical Compliance Guideline
PCG 2019/1DC
Transfer pricing issues related to inbound distribution arrangements
What this draft Guideline is about
This draft Guideline outlines our compliance approach to the transfer pricing outcomes for inbound distributors.
Arrangements to conduct any of the activities covered in paragraphs 16 to 26 of this Guideline, together with any related activities involving the provision of ancillary services, are referred to in this Guideline as “inbound distribution arrangements”.
This Guideline applies to inbound distribution arrangements of any scale. However, this Guideline will not apply where you are an inbound distributor and you:
- are eligible, and
- choose to adopt the distributor simplified transfer pricing record keeping option in Practical Compliance Guideline PCG 2017/2 Simplified transfer pricing record-keeping options.
ATO uses the framework in this Guideline to assess the transfer pricing risk of inbound distribution arrangements and tailor their engagement with you. Where this Guideline applies, they rate the transfer pricing risk of your inbound distribution arrangements having regard to a combination of quantitative and qualitative factors.
If the ATO rates your inbound distribution arrangements as having a low transfer pricing risk, you can expect that they will generally not apply compliance resources to review the transfer pricing outcomes of your arrangements. However, if your inbound distribution arrangements fall outside the low transfer pricing risk category, you can expect ATO to monitor, test or verify the transfer pricing outcomes of your arrangements. The higher the risk rating, the more likely ATO are to review your arrangements as a matter of priority.
This Guideline is limited to the transfer pricing risks posed by the profit outcomes associated with inbound distribution arrangements. It does not affect ATO’s compliance approach to other tax issues that might arise in connection with your inbound distribution arrangements (for example, the deductibility of an expense, the existence of withholding tax obligations or the application of the general anti-avoidance rule in Part IVA of the Income Tax Assessment Act 1936). If the ATO considers that your inbound distribution arrangements pose a risk under other tax provisions, they will have cause to apply compliance resources to review your arrangements.
This Guideline does not affect the principles determining taxable income attributable to business operations carried on, at, or through an Australian permanent establishment of a foreign resident.
This Guideline does not limit the operation of the law. The information provided in this Guideline does not replace, alter or affect our interpretation of the law in any way. It does not relieve you of your legal obligation to comply with all relevant tax laws, or create any safe harbour administrative concessions.
Inbound distributors
Inbound distributors are intermediaries in the distribution channel or supply chain that resell products to retailers, merchants, contractors or industrial, institutional or commercial users. Their focus is on selling business to business, rather than to household consumers. An inbound distributor may have some retail operation, but their primary sales channel is not their own retail activity.
In relation to tangible goods, we consider you to be an inbound distributor for the purposes of this Guideline if:
- your business comprises the distribution of goods purchased from related foreign entities for resale to third parties, and
- you or your related entities don’t significantly contribute to the creation (including manufacture or alteration) of the goods in Australia.
A distributor is deemed to be in the white zone where both of these conditions apply:
- their inbound distribution arrangements are covered by any of the following for the current income year:
- a signed APA;
- a settlement agreement with the ATO;
- a court or tribunal decision that applies to the distributor as a party to the proceedings and to income years no more than three income years ago; or
- the ATO has conducted a review of the inbound distribution arrangements within the last three years and provided a low risk or high assurance rating for those arrangements; and
- there has not been a material change in the comparability factors or pricing of the inbound distribution arrangement since the applicable income years of the agreement, decision or review noted above.
