Transfer Pricing & International Tax

Are Your Overseas Group Charges Still Fit for Purpose?

A new overseas subsidiary, a larger offshore team, or a change in distribution responsibilities can leave intercompany charges out of step with day-to-day operations.

This month, we look at a practical starting point for reviewing group charges, alongside the ATO’s recent software royalty ruling and its updated inbound distributor guidance. The aim is to identify what warrants attention while keeping the review proportionate to your business.

Management Fees and Shared Costs: Can You Explain the Charge?

If your Australian business pays an overseas group company for management, finance, IT or operational support, or provides those services overseas, can your finance team explain how the charge is calculated?

This isn’t a new issue, but it’s often overlooked as a business grows. Consider five questions:

• What work was performed, and which entities benefited?
• Which costs were included, and which were excluded?
• Why does the allocation method reflect the services received?
• What supports any mark-up or other pricing method?
• Do the agreement, calculation, invoice and accounting entries align?

For example, if an Australian business sets up a related finance team overseas and that team begins supporting additional group entities, an allocation based on last year’s headcount may no longer reflect the services provided. The review should consider the services, beneficiaries and appropriate pricing before invoices are updated.

The ATO also publishes simplified transfer pricing record-keeping options for eligible businesses. Eligibility must be checked against the applicable conditions, and simplification does not remove the need to support the charge.

Practical next step: trace one material service charge from the underlying costs to the invoice. Identify any gaps before deciding whether benchmarking, documentation or an updated invoicing process is needed.

Software Payments: Review the Rights Behind the Agreement

On 4 September 2026, the ATO released final Taxation Ruling TR 2026/2. It sets out the Commissioner’s view on when payments under software intermediation arrangements are royalties for Australian royalty withholding tax purposes. The ATO also released an expanded draft Practical Compliance Guideline, PCG 2026/D4, setting out its proposed compliance approach.

The ruling and the draft guideline are separate documents:

• TR 2026/2 explains when a payment involves the use of, or the right to use, copyright or similar rights. It applies both before and after its date of issue, so historical positions may also need review.
• PCG 2026/D4 is still a draft and should not be treated as final guidance. It proposes risk zones, including a ‘green zone’ for straightforward resale of existing software copies (electronic or tangible). Consultation closed on 2 October, and the final guideline is yet to be released.

Australian software distributors and intermediaries making overseas payments should consider:

• The contractual rights granted or exercised
• The actual activities performed in Australia and overseas
• The payment flows and any royalty component
• The relevant treaty position, where the recipient is a non-resident. Some treaties, including the Australia-US and Australia-Singapore treaties, contain materially different royalty definitions

Where a related party is involved, the arrangement may raise both transfer pricing and royalty withholding tax questions. A transfer pricing study alone does not determine whether a payment is a royalty.

Practical next step: identify the relevant agreements and review the rights granted and the applicable treaty for both past and future payments before reaching a withholding tax conclusion.

Importing From Group Companies? Revisit Your Distributor Assessment

On 22 April 2026, the ATO updated PCG 2019/1, its practical compliance guideline on transfer pricing issues related to inbound distribution arrangements. The updated guideline applies to income years ending after 22 April 2026 and covers both existing and new inbound distribution arrangements.

There are two key changes:

• The profit markers have been refreshed to align with more recent market performance, so an arrangement previously assessed as lower risk may now sit differently.
• A new ‘white zone’ covers certain taxpayers, such as those who recently obtained high assurance for their transfer pricing.

If your Australian business distributes goods, or digital products or services, acquired from overseas related parties, check whether an earlier assessment remains appropriate under the revised markers.

The guideline is an ATO compliance risk framework. Its risk zones indicate where the ATO may focus its compliance resources; they do not themselves establish an arm’s-length price.

Practical next step: re-run your risk assessment against the updated profit markers and check the financial information supporting your current transfer pricing position.

Want to Know More About How We Can Help You?

To discuss what these issues mean for your business, contact Bentleys international tax specialist, Simon How. He can help you review your cross-border arrangements, identify areas that need attention and work through practical next steps.

Simon How
Partner – Tax Consulting
Bentleys
+61 8 8372 7974
[email protected]

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.