ATO takes a tighter approach to APA’s following release of the new process
As published in The Age on 23rd November 2015, the ATO is quoted to take a tighter approach to deals with multinationals on future taxes, meaning agreeing up front in the form of an Advance Pricing Arrangements. The ATO is becoming more ‘picky’ about entering into agreements and has delayed some renewals with major multinationals. To read more of the Age article click here http://www.theage.com.au/business/the-economy/ato-takes-tighter-approach-to-deals-with-multinationals-on-future-taxes-20151028-gkkqq2
As we discussed in our newsletter back in July, the Australian Taxation Office (ATO) has released a new process for advance pricing arrangement (APA) negotiations (Practice Statement, PS LA 2015/4). The new process will apply to all ongoing APA negotiations and future APA requests (both new APAs and renewals). The APA program has been updated to ensure it reflects changes in global economy and the ATO’s anti-profit shifting work.
The new process includes three key steps as follows:
- Early Engagement
- APA Application
- Monitoring Compliance.
- A ‘Triage panel’ during the early engagement phase, a bit like ‘triage’ at the hospital! This panel will assess the taxpayer’ case in order to decide whether the APA application is accepted or not.
- Taxpayers will need to undertake a significant amount of technical work during the early engagement phase to present their case to the Triage panel
- Taxpayers will have to disclose more information, particularly in relation to taxpayers’ global value chain, during the early engagement phase before being accepted into the program
- The ATO will aim to determine up front any ‘tax complexities’ that may prevent the ATO from entering into the APA program with the taxpayer. These ‘tax complexities’ include presence of aggressive tax minimization structures in the multinational corporation global value chain, arrangements that appear to lack commerciality, the total value of the cross-border dealing considered not material or taxpayers that are not sufficiently cooperative with the ATO
- The timelines are expected to be longer than in previous process, stage 1 maximum of 6 months and stage 2 maximum of 18 months.
What do we recommend you do now?
If your company is interested in entering into an APA with the ATO, you should carefully assess your resources and effort required, particularly during stage 1, taking into account that there is no guarantee the ATO will accept you into the APA program.
It will be critical to engage specialist consultants from the beginning of the process to manage the relationship with the ATO and to assist with the technical documentation.