If you’re an Australian distributor for a related foreign manufacturer then now’s the time to consider and apply the ATO’s Guide and Risk model to your product pricing arrangements.
Applying from 13 March 2019, the ATO Guide sets out circumstances under which they consider the pricing of your distribution arrangements are Low, Medium or High risk (for ATO compliance checking purposes).
Distributors who have product pricing arrangements with a Low risk are unlikely to be reviewed by the ATO, while arrangements with a Medium or High risk are more likely to be reviewed.
Specific quantitative and qualitative factors are identified in the Guide for:
- General distributors; and
- Specific types of distributors in the following industries:
- Life Sciences
- Information and Communication Technology
- Motor Vehicles
These days, the ATO collects large quantities of profitability and other data from every business taxpayer’s tax returns, and from other sources, to be able to perform automated risk-based benchmarking analysis on every taxpayer. These analytical techniques, together with any previous dealings with a business, will underpin the ATO contacting distribution businesses who have a Medium or High risk rating under the Guide.
For example, under the General Distributors category, the following profit levels will indicate your level of risk to the ATO:
|Profit level from distribution||ATO risk rating|
|Above 5.3%||Low risk|
|Between 2.1% – 5.3%||Medium risk|
|Below 2.1%||High risk|
We recommend that you annually assess where you sit on the ATO’s risk matrix. The risk analysis is pretty easy to apply and should take you about 30 mins (or less) to read through the Guide and work out where you land. Once you know where you sit, you can use the assessment result:
- To compare against your current pricing arrangements and take appropriate action, or no action, based on how confident you are with tax risk relating to your pricing arrangements;
- As part of product pricing and larger financial discussions with your foreign parent;
- To have ready to provide to the ATO if you’re in the Medium or High risk categories, and to inform the tax governance discussions of your local Directors.
There are also some penalty concessions offered by the ATO if businesses adjust their arrangements into the Low risk zone before 13 March 2020. As always, proceed cautiously here and make good commercial decisions around your pricing arrangements first before making any changes.
If you would like to discuss the impact of ATO Guide and Risk Model could have on your business, please feel free to contact your local William Buck manufacturing specialist.