New high risk transaction: Procurement hubs
The ATO is currently focusing on reviewing arrangements involving the use of offshore procurement hubs that source goods on behalf of Australian resident multinational enterprises (MNEs).
In the most recent Tax Payer Alert TA 2015/5, the ATO announced that is focusing on structures where the procurement hub offshore is sourcing goods on behalf of the Australian MNE and is also receiving services from another related party entity located offshore (Service hub).
The main concern of the ATO is that Australian resident MNEs are entering into offshore procurement structures where there is no commercial justification for performing the procurement function into two separate entities offshore.
The ATO is concerned about the implementation of this type of arrangements and application of the controlled foreign company (CFC) rules, the transfer pricing rules and Part IVA of the Income Tax Assessment Act 1936. Arrangements involving the outbound supply of goods by offshore hubs are also likely to attract some attention.
What can you do?
If you are currently considering entering into procurement hubs arrangements, it is recommended:
- Before implementing this type of arrangements, assess the transfer pricing implications for the company to ensure compliance with the arm’s length principle
- Prepare transfer pricing documentation to support the international related party transactions that arises from the procurement arrangement to ensure that all the related parties are rewarded in accordance with the arm’s length principle.
If you are considering implementing procurement hubs please contact Transfer Pricing Solutions for assistance on +61 (3) 5911 7001 or firstname.lastname@example.org www.transferpricingsolutions.com.au