PCG 2017/1 focuses on arrangements where an Australian company makes ongoing payments to an offshore related party that performs certain functions. These payments may take the form of service fees, commissions, procurement margins or reduced sales prices.

The guideline typically applies where:

• Activities are performed offshore on a centralised or regional basis
• The offshore entity earns a defined or routine return
• The arrangement impacts the amount of profit reported in Australia

The PCG introduces a point-based risk assessment framework that assigns arrangements to specific risk zones to assist the ATO to identify the level of risks:

• White zone - self-assessment of risk rating unnecessary
• Green zone - low risk
• Blue zone - low to moderate risk
• Yellow zone - moderate to high risk
• Amber zone - high risk, and
• Red zone - very high risk

The risk zone does not determine whether an arrangement is compliant or non-compliant. Instead, it indicates how likely the ATO is to review the arrangement.

An arrangement assessed as lower risk is less likely to attract proactive ATO attention. In many cases, the ATO may accept the outcome without further review.

• Arrangements assessed as higher risk are more likely to result in:
• Requests for additional information
• Further review or audit activity
• More detailed transfer pricing analysis being required

Importantly, a high-risk rating does not automatically mean the pricing is incorrect. It simply means the ATO considers the arrangement to warrant closer examination.

Although PCG 2017/1 is a tax guideline, its impact often extends beyond the tax function. Information required to assess risk often comes from:

• Finance (costs, margins, profit outcomes)
• Operations (where activities are actually performed)
• Management (decision-making authority and control of risks)

For many businesses, responding to PCG 2017/1 involves explaining how the operating model works in practice, rather than preparing complex tax calculations

Companies affected by PCG 2017/1 typically undertake several practical steps, including:

• Identifying whether they have arrangements covered by the guideline
• Understanding where key functions, assets and risks sit within the group
• Assessing which risk zone the arrangement falls into
• Ensuring documentation supports commercial and economic rationale

In some cases, businesses may also review or adjust arrangements to better align profit outcomes with operational reality.

PCG 2017/1 matters because it directly influences how the ATO engages with taxpayers. A clear understanding of the guidelines can help businesses:

• Reduce the likelihood of unexpected ATO reviews
• Improve tax certainty
• Manage compliance costs more effectively
• Demonstrate transparency and good governance

For companies operating internationally, the guideline is an important part of managing tax risk in Australia.