Australia reviewing MNE tax arrangements concerning intangible assets

Australia reviewing MNE tax arrangements concerning intangible assets

The Australian Taxation Office is reviewing international arrangements that mischaracterize intangible assets to understate Australian profits.

Taxpayer Alert (TA) 2018/2 – issued on November 22 – notes that the tax authority is particularly concerned about taxpayers engaged in operations that require the use or enjoyment of intangible assets developed, maintained, protected or owned in a foreign jurisdiction but fail to pay, or recognize payment of, a royalty for the purposes of Australia’s tax treaties and tax laws.

According to the tax authority, in such operations, there is typically a significant mismatch between the substance of the relevant parties operations and the form of their legal agreements.

Usually there is also a mischaracterization of the relevant assets and the activities performed in connection with them, the tax authority noted.

The tax authority noted that taxpayers and advisors who enter into such types of arrangements will be subject to increased scrutiny.

The ATO clarified that international arrangements involving an incidental use of an intangible asset are not covered.

ATO Deputy Commissioner Mark Konza said: “Assets such as intellectual property, manufacturing know-how, trademarks, and brand need to be recognized, especially for those taxpayers where intangible assets make up a significant proportion of the inherent value of the goods sold in Australia.”

“We’ve already commenced investigation of a number of arrangements that appear to not recognize valuable intangible assets, and the Taxpayer Alert provides clear notice of our intention to tackle these types of arrangements.”

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