Australia: Report on review of advance pricing agreement program
The ATO published a report with findings from its review of the APA program
The ATO published a report with findings from its review of the APA program
The Australian Taxation Office (ATO) on 30 June 2023 published a report with findings from its review of the advance pricing agreement (APA) program, which was initiated in early 2022.
The report made a number of key recommendations that the ATO is expected to implement over the coming months, including setting out clearer APA program entry criteria, better defining collateral issues and how they can be resolved, setting out mutual obligations, and delivering governance improvements.
In relation to the APA program entry criteria, the report set out a number of “positive indicators” including:
- Prioritization of bilateral and multilateral APAs
- Materiality threshold of AUD 5 million of covered transactions per year or 80% of assessable income or deductible expenses
- Positive taxpayer behavior
- Renewals
The report also sets out a number of “negative indicators” relating to APA program entry criteria including:
- Taxpayers who engage in “tax avoidance activities or schemes”
- Presence of collateral issues that affect transfer pricing outcomes
- Significant differences in views relating to the transfer pricing methodology or approach
KPMG observation
A key focus of the report relates to the formalization of the ATO’s current approach to collateral (or non-transfer pricing) issues. Over the past couple of years, the ATO has explored risks associated with collateral issues (including but not limited to intangible migration, embedded royalties, permanent establishment, MAAL, DPT, and hybrid mismatch rules) as part of its decision around whether a taxpayer should be accepted into the APA program. This has resulted in taxpayers being subject to numerous information requests, lengthy delays, and in some circumstances, exiting from the APA program. The report includes recommendations regarding how to deal with collateral issues and pathways for resolution, which may include collateral issues being carved out of the APA, collateral issues being resolved as part of the APA, or in some circumstances, the taxpayer exiting the APA program.
The ATO has also committed to making improvements to the APA program’s governance based on feedback it received as part of the consultation process. These improvements include formalizing the review recommendations and APA entry criteria by incorporating it into existing ATO guidance, re-evaluating the APA panel composition and meeting frequency, and publishing more detailed APA program statistics and insights on an annual basis.
For more information, contact a KPMG tax professional in Australia:
Sophie Lewis | sophielewis@kpmg.com.au
Sean Madden | smadden3@kpmg.com.au
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