The Australian Taxation Office (ATO) has released a draft Practical Compliance Guideline, PCG 2021/D4, on cross-border arrangements connected with intangibles. The draft PCG covers a broad range of issues including intangible transfers, the development, enhancement, maintenance, protection and exploitation (DEMPE) functions, and the characterisation of intangible payments. There is a significant focus on transfer pricing, and the ATO notes that numerous other Australian tax laws may also be relevant, including capital gains tax (CGT), withholding tax, the general anti-avoidance rules (GAAR), and diverted profits tax (DPT).
The draft PCG elevates the importance of maintaining robust documentation and evidence for arrangements involving intangibles. The core issues of concern, such as arrangements that lack commercial rationale, misalignment of form and substance, and inappropriate transfer pricing are unsurprising. However, the onerous evidentiary requirements mean that if your documentation is insufficient, you could have an arrangement that is rated as high or medium risk even where there are no obvious risk factors present.
