After a nearly three-year wait[1], the ATO finalised the risk guideline targeting cross-border related party arrangements (collectively referred to as ‘Intangibles migration arrangements’) involving:

• Migration of intangible assets – ‘Migration’ refers to any restructure or change associated with Australian intangible assets that allows another entity to access, hold, use, transfer or benefit from the intangible assets, and
• Mischaracterisation / non-recognition of Australian activities connected with intangible assets – this includes arrangements relating to the Australian development, enhancement, maintenance, protection and exploitation (DEMPE) activities in connection with intangible assets held offshore.

The Guideline addresses concerns with arrangements:

• under which Australia-led intangibles are transferred, licensed to or otherwise held by an international related party
• lacking the requisite substance to perform or control DEMPE activities and/or assume associated risk and
• where value-adding DEMPE activities remain in the hands of Australian taxpayers.

The Guideline applies from 17 January 2024, and will apply to existing and new arrangements.

The Guideline does not reflect the ATO’s interpretation of tax laws, however serves as a cautionary notice that ATO will focus on scrutinising[2] risky arrangements.

The ATO’s compliance approach

The ATO’s approach to risk assessment is determined by two point-based Risk Assessment Frameworks (RAFs).

RAF Table 1

The below risk factors may trigger risk points for a completed intangible migration during the current year:

• in connection with a restructure or change had associated with intangibles, the Australian entity continues to hold certain economic relationship with the intangibles
• Operational and functional circumstances of the relevant international related party (IRP)o
• tax outcomes of the relevant IRP as well as the Australian entity
• undocumented dealing involving Australian intangible assets / DEMPE activities that are not recognised.  

RAF Table 2

RAF Table 2 becomes relevant where there was no intangible migration completed during the current year. It comprises the below risk factors:

• extent of Australia based DEMP activities in connection with intangible assets owned by an IRP
• operational and functional circumstances of the relevant IRP
• tax outcomes of the relevant IRP
• whether the ongoing intangible arrangement is connected to a past migration (if so, RAF Table 1 needs to be assessed on past migration).

The risk zones / ratings and corresponding compliance approaches are summarised in the table below.

Evidence expectations

Similar to previous drafts, the Guideline continues to place a high bar for evidence and documentation.

The expected evidence focuses on the following aspects:

• evidencing the commercial considerations and business decision-making
• evidencing the legal form and substance of Intangibles migration arrangements
• identifying and evidencing the intangible assets and connected DEMPE activities, and
• evidencing the tax and profit outcomes of Intangibles migration arrangements.

The complexity of taxpayers’ business, the extent to which their Intangibles migration arrangements contribute to that business, and the risk rating of the arrangement will influence the type and level of evidence the ATO expects from them to substantiate the arrangement. However, the Guideline does not serve as substitute for the transfer pricing documentation requirements under Australian tax law.

Examples

Appendix 1 of the Guideline includes 15 examples of Intangibles migration arrangements to illustrate how the RAFs should be applied by taxpayers. Our transfer pricing experts break down and explain these examples here.

Some positive improvements, but still challenging to handle

Compared with PCG 2023/D2, there appears to be some “taxpayer friendly” changes which show that the ATO adopted public feedback during the consultation process. Some positive changes include:

• Introduced ‘Excluded Intangibles Arrangements’ that are not subject to the Guideline – essentially vanilla outbound / inbound distribution arrangement, or low value service arrangement (subject to strict eligibility criteria).
• Expansion of lower end risk zones to White Zone and Blue Zone.
• Reallocation of risk scores – for example, uplifted the point threshold (from 25 to 35) for higher risk zone, and Migration of intangibles, by itself, does not immediately trigger a risk point.
• Providing more scenarios where ‘grouping’ of Intangibles migration arrangements is allowed.

On the other hand, the Guideline remains to place significant challenges and administrative burden on taxpayers:

• The Guideline has very broad application, encompassing scenarios beyond the immediate transfer of assets.  This requires a detailed function and risk analysis to demystify how the Australian entity and its relevant IRP interact in connection with DEMPE activities, regardless of the materiality[1] involved.
• The eligibility criteria for ‘Excluded Intangible Arrangements’ appears to be restricted, and the lack of any direct example for ‘Excluded Intangible Arrangements’ in the Guideline does not help provide confidence in application to the public.
• The Guideline scopes out consideration of other tax aspects such as ‘pricing’ of intangible arrangements. In the RAF, one significant risk trigger is ‘tax outcome’ which focuses on the tax treatment or condition of the IRP.  However, if the pricing is good enough from an Australian perspective, the overall tax risk to the Australian taxpayer could have been lower than that derived from the Guideline.  As such, the risk outcome derived from the RAF, by itself, could be misleading.
• Taxpayers are expected to self-assess their risk based on extensive evidential information, including information possessed by IRPs.  Obtaining intangibles related information or cooperation from overseas could be very challenging, due to confidentiality or other concerns.

Key takeaway for taxpayers

The Guideline’s finalisation highlights the ATO’s focus on tax risks connected to intangible arrangements with offshore related parties. It is relevant to a wide range of Australian taxpayers, regardless where the relevant intangibles are held. The asessment of the relevance and associated risk is not a straightforward process.  It is important for taxpayers to self-assess early and complete these self-assessments before tax returns for the relevant income year are lodged.

For larger taxpayers that are required to complete Reportable Tax Position (RTP) Schedules in the tax return, a new question on Intangibles migration arrangements will need to be completed.  Getting in touch with relevant IRPs early to obtain necessary evidential support is critical for the RTP disclosure.

Regardless of materiality, taxpayers need to ensure sufficient coverage on the arm’s length nature of relevant intangible arrangements is included in its contemporaneous transfer pricing documentation.  All the examples detailed in the Guideline have mentioned transfer pricing as a focus area under the ATO’s compliance approach across all risk categories.

How SW can help

Our experts can assist with:

• further clarification regarding the Guideline
• helping you understand more to what extent your arrangements will be subject to the Guideline
• assessing risk level of your arrangements
• ensuring your RTP disclosures are accurate and supportive
• putting in place transfer pricing documentation to provide a further line of defence for your intangible arrangements.

Reach out to your SW advisor for support from our specialist tax team.

Contributors

Elena Guo

[1] With initial PCG 2021/D4 released in May 2021, followed by PCG 2023/D2 released in May 2023.

[2] Including the potential application of the general anti-avoidance, transfer pricing, capital gains tax rules etc.

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He assists clients with property investment and migration issues across international markets including Hong Kong, China and Macau and provides audit, accounting and advisory services for public and private companies in a range of industries, particularly the property, resources, manufacturing and financial services sectors.

Fluent in English, Mandarin and Cantonese, Michael bridges the communications gap between different business practices and cultural distinctions, and is an outstanding facilitator for listed and unlisted companies as well as UHNIs and family offices.

Michael has been a prolific public speaker through the national SW Mandarin Tax & Accounting Update series and our Federal Budget coverage in Mandarin. He regularly presents to Victorian Government guests on ‘Doing Business in Australia’, has participated in The Observership Program, and taken up leadership roles for a number of social groups such as The Museum of Chinese Australian History (current Director and finance committee member), and the Chinese CPA Discussion Group (former Chair).

Michael is a Partner of SW Audit and a Director of SW Accountants & Advisors Pty Ltd.

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He works with a broad spectrum of clients from small individuals to large private family groups to advise on cash flow, debt structuring, personal protection and retirement planning for individuals through to asset allocation, portfolio construction and investment selection for investors small and large.

Daniel provides clients with comprehensive financial services to get their entire financial house in order and keep it that way forever.

Daniel’s experience includes:

• Developing simple and complex financial strategies to help clients achieve their goals
• Providing investment and asset allocation advice to investors small and large
• Working with Trustees of Superannuation Funds on Regulatory Compliance matters
• Helping SME clients develop strategies to transition business wealth to personal wealth
• Acting as Executor/Trustee/RP for Estate’s and PAF’s
• Advising institutions on policy, asset allocation and investments

ShineWing Australia Wealth Pty Ltd trading as SW Wealth

Australian Financial Services Licence No 236556

Level 10, 530 Collins Street, Melbourne VIC 3000 Australia

Daniel is a Partner of SW Audit and a Director of SW Accountants & Advisors Pty Ltd.

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This is devastating news for many, and has caused a variety of issues for those SIV holders who have been impacted by these investments which that need to be considered and actioned in a timely manner. In some instances, there is little time to reorganise these affairs, and many clients have shared with us that they have limited time to find a solution.
In response to these concerns, ShineWing Australia has put together a panel of experts to assist impacted individuals to help provide them with a ‘full-circle’ solution comprising legal, migration and financial help in one place.
Seeking out qualified, registered and independent migration and investment advice is particularly important at all times. This will ensure that any conflict of interest on the advisor side is removed, and that you are being informed of options that are right for your situation before making investment choices.

Migration

ShineWing Australia has highly experienced migration agents with particular expertise in assisting clients from the Asia-Pacific region to obtain an Australian visa. We advise on many different visa classes according to individual circumstances and personal needs, including SIVs.

As Registered Migration Agents (RMA) we act independently, and we also adhere to the Code of Conduct set out by the Office of the Migration Agents Registration Authority.

If you are a current SIV holder and have been affected by breaches of complying funds, and you think it may have jeopardised your visa status, we will be able to offer you a free consultation on your visa and investment status. Our services areas are listed below but we are happy to assist in other visa matters as appropriate.

Financial Services

ShineWing Australia’s Financial Planning and Debt Advisory services are provided by Authorised Representatives of ShineWing Australia Wealth Pty Ltd AFSL/ACL 236556.

When investing as an SIV or otherwise, it is important to perform sound due diligence on your intended investment target and ensure:

• there are no conflicts of interest

• the investment vehicle has a proven track record of underlying managed funds

• it has a strict compliance regime

• it has the correct diversification per section of the SIV framework

• the fund or investment vehicle is registered and compliant with ASIC

• that the fund is backed by independent advice and focused on asset quality, as opposed to a focus on the sale of a particular product.

Managing the wealth and private affairs of business owners, families and high net worth individuals requires a deep appreciation of individual circumstances, and a detailed understanding of immediate needs and future financial objectives.

Private Clients and Wealth covers the following services:

For an immediate response and for the services below, our panel members will be able to help you with the following:

If you require assistance with one or more of the above areas, and would like to discuss your options in a private, confidential and free of charge consultation with one of our panel experts, please get in touch in one of the following ways.

SIV enquiries

Click here to contact our experts today.

Email us via SIVsupport@shinewing.com.au.

Follow us on WeChat for the latest updates and webinars.

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A number of recent articles in the Australian press have discussed the liquidation or voluntary administration of several large funds that were specifically created as complying funds for the SIV program.

There are a variety of issues that people who have been impacted by these investments need to consider or action, and many have shared that they have limited time to find a solution.

ShineWing Australia has prepared a panel of experts to provide you with a full range of options, in one place, to assist you with decisions on how to move forward. Our team, and those of our partner firms, have already assisted several clients who have been affected in these matters, including:

Legal solution:
An investor approached us to discuss their legal options to recoup money that had not been returned. We advised a strategic solution through Australia’s legal system and assisted in a favourable judgement by the Supreme Court.

Visa solution:
A client had held their Subclass 188c Visa holder for 2 years before finding out recently that their Complying Fund had been breached. We immediately notified the Department of Home Affairs who granted us an extension to the 30 day investment switching rule and allowed our partner legal team to investigate the matter while the SIV holder and their family were able to continue their stay in Australia.

Our panel members will be able to help you with the following:

If you require assistance with one or more of the above areas, and would like to discuss your options in a private, confidential and free of charge consultation with one of our panel experts, please get in touch in one of the following ways.

SIV enquiries

Click here to contact our experts today.

Email us via SIVsupport@shinewing.com.au.

Follow us on WeChat for the latest updates and webinars.

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