Final ATO guidance on migration of intangible assets

Scope of the PCG

Practical Compliance Guidelines provide guidance to taxpayers as to how the ATO will administer the law. They are intended to assist taxpayers in complying with tax laws and are not binding on the ATO. PCG 2024/1, like many others, provides a risk assessment framework that taxpayers can use to assess the likelihood of an ATO review. The PCG indicates that taxpayers should use it to understand:

• the kinds of compliance risks that may be presented by any intangibles migration arrangements, enabling taxpayers to make informed decisions about the likelihood that they will be subject to ATO compliance action
• the features of intangibles migration arrangements the ATO consider present greater compliance risk, and
• the evidence the ATO is likely to ask that taxpayers produce in relation to their intangibles migration arrangements, including the intensity of engagement that can be expected based on the compliance risks associated with the taxpayer’s intangibles migration arrangements.

PCG 2024/1 deals with what are referred to as ‘intangible migration arrangements’, which are defined as cross-border arrangements involving the migration of intangible assets, or arrangements with similar effect. This is said to include arrangements relating to Australian development, enhancement, maintenance, protection and exploitation (DEMPE) activities in connection with intangible assets held offshore. The term ‘migration’ is said to refer to any restructure or change associated with your intangible assets that allows another entity to access, hold, use, transfer or benefit from the intangible assets. The PCG recognises that in some circumstances it may be appropriate for taxpayers to treat a number of their relevant dealings or arrangements in connection with the same intangible assets as one intangibles migration arrangement.

The PCG borrows concepts from the Transfer Pricing Guidelines produced by the Organisation for Economic Co-operation and Development (OECD) to define ‘intangible assets’ as being a reference to property, assets and rights that are not physical or financial assets, which are capable of being controlled for use in commercial activities, and not restricted by any accounting or legal definitions or concepts.

PCG 2024/1 applies from 17 January 2024 and will apply to existing and new arrangements. Notably, certain arrangements may be excluded from the scope PCG 2024/1, namely certain distribution arrangements and arrangements involving low-value services, subject to meeting the exclusion criteria set out in the PCG.

The ATO’s compliance approach

The ATO’s compliance approach to intangible migration arrangements will vary depending on the risk level, or zone, associated with those arrangements. In this final PCG, the ATO has moved away from a high, medium and low risk rating, to ‘risk zones’, which is aligned with the approach taken in many other PCGs. 

The risk zones, and the ATO’s compliance approach, are summarised in the table below.