The ATO is currently reviewing international arrangements that mischaracterise Australian activities connected with the development, enhancement, maintenance, protection and exploitation (DEMPE) of intangible assets.
Such arrangements may be non-arm’s length or structured to avoid tax obligations, resulting in inappropriate outcomes for Australian tax purposes.
One of the issues is whether functions performed, assets used and risks assumed by Australian entities in connection with the DEMPE of intangible assets are properly recognised and remunerated in accordance with the arm’s length requirements of the transfer pricing provisions in the taxation law.
These arrangements are particularly in focus where intangible assets and/or associated rights are migrated to international related parties as part of non-arm’s length arrangements and/or in a manner intended to avoid Australian tax.
In circumstances where these arrangements lack evidence of commercial rationale and/or substance, the ATO will apply of the exceptions in the transfer pricing provisions (non-recognition) and anti-avoidance rules. The general anti-avoidance rule (GAAR) or diverted profits tax (DPT) provisions may apply where a tax benefit or DPT tax benefit is obtained in connection with these arrangements.
Arrangements of particular concern include, but are not limited to, those described in the Alert.Australian Tax Alert 2020 - DEMPE Intangibles