Findings report RTP – Public and multinational businesses

About this report

In this report, we provide the aggregated disclosures made by large public and multinational companies for the 2019–20 to 2022–23 income years under Category C of the reportable tax position (RTP) schedule as of 30 June 2024. Further lodgments of RTP schedules after this date will not be included for this report.

The data provides insights as to the prevalence of key corporate tax risks in relation to large public and multinational entities. The range of risk levels can vary across the lodging population. We consider and verify the level of risk reported as part of our compliance program. Generally, this corresponds with our assessment of the disclosed arrangements.

RTP disclosures are provided to our specialist tax performance teams and reviewed under our compliance and assurance programs, which include the Top 100 Justified Trust program, the Top 1,000 Combined Assurance program and the Top 1,000 Next Actions program.

To ensure RTP lodgment obligations are met, we undertake an annual RTP non-lodgment program and take action when required.

RTP disclosures help us understand and assess changes in tax positions and arrangements, including new arrangements taxpayers are entering into. The disclosures also allow us to prioritise our assurance activities.

We tailor our compliance approach to the risk rating disclosed by taxpayers. Taxpayers who have achieved justified trust (high assurance) will have a less intensive engagement approach during the monitoring and maintenance period.

We apply more intensive scrutiny for high-risk disclosures to determine if they comply with the relevant legislative provisions. If we can’t gain this assurance at the review stage, we may undertake an audit or more intensive investigation through our assurance programs.

For more information about how we use RTP disclosures and our assurance programs, see RTP and our assurance programs.

For more information about the purpose of the RTP and information disclosed, see Reportable tax position schedule.

Report highlights

This is the fifth year of publishing this report. It includes high-level observations on trends over the 4 income years 2019–20 to 2022–23, where practicable.

• Increase in taxpayer disclosures
  • Once again, there has been an increase in taxpayers making disclosures and an upward trend in low-risk disclosures for large public and multinational entities.
• Arrangements of concern are declining
  • The data shows that high-risk or arrangements of concern are declining for large public and multinational businesses. This finding is consistent with our view that most large businesses do the right thing and are paying the right amount of tax. It is also reflected in our estimate of the large corporate groups income tax gap.
• 15% increase in lodged schedules over 4 years
  • The number of disclosures made has more than doubled and the number of schedules lodged has increased by more than 15% over the 4 years 2019–20 to 2022–23. This reflects the progressive expansion of the lodgment requirement from our Top 100 population to all entities that meet the total business income threshold and ownership criteria.
• We continue to focus on ensuring ongoing compliance by large corporates
  • While the data from RTP schedule disclosures and the tax gap estimates indicate high levels of voluntary compliance, we still see room for improvement, such as the rate of errors made by taxpayers on their schedules. We will continue our scrutiny of the large corporate groups population to ensure their ongoing compliance. We will also take firm action with those who choose to do the wrong thing.

For more information on how we’re improving the system for those who want to comply, and taking firm action against those who choose not to, see Tax and Corporate Australia.

Category C of the RTP schedule

Questions in Category C of the RTP schedule are typically linked to ATO public advice and guidance (PAG) products, such as:

• taxpayer alerts (TAs)
• practical compliance guidelines (PCGs).

Together these products cover the key systemic risks in relation to large public and multinational businesses. As such, the aggregate data provides insights about the prevalence of key tax risks in the population.

There are generally no materiality thresholds on Category C questions. Taxpayers who meet the lodgment criteria must disclose arrangements irrespective of the impact on their overall tax outcomes.

Questions

Nearly two-thirds of Category C questions in 2022–23 relate to arrangements described in taxpayer alerts. A third of the questions relate to PCGs and require taxpayers to self-assess the risk rating by applying the criteria in PCGs; the remaining questions relate to other risks.

Table 1: 2022–23 Category C questions and the related PAG product

Question number	PAG product
7, 9, 14, 22–24, 27, 37 and 39	PCG
2, 3, 10–13, 17, 25, 26, 32–36 and 41	Taxpayer alert
16, 19, 21 and 42	Other

Note: Questions 28–31 and 40 have not been included as they relate to private company arrangements. All disclosures will be monitored; however, the risks are not part of the compliance program for public and multinational businesses.

Disclosures

Taxpayers are only required to provide a response to a question under Category C if they have an arrangement covered by the question. This means every schedule lodged won’t contain a response to every Category C question. For example:

• some taxpayers will have no disclosures to make
• some taxpayers will only have one question related to an arrangement
• some taxpayers may have multiple arrangements to disclose, or a question may ask them to make multiple disclosures.

Care needs to be taken when making comparisons across multiple years as taxpayers and arrangements change year on year. Any comparison across years may not be a comparison of the same arrangements or taxpayers. The population has changed over the years as a staggered approach to the expansion of the schedule has occurred to take account of substituted accounting periods and the expansion to private entities. Disclosures made by private entities have not been included in this report. Population changes over time will mean taxpayers will move in and out of the public and multinational businesses demographic.

Note: Only questions included in the 2022–23 schedule have been included in the analysis. Any questions from prior years that have been removed are not included in this report.

For more information, see How we use RTP disclosures.

RTP lodgments and disclosures

There has been an increase in lodgments, a high level of lodgment compliance and increase in disclosures over the past 4 years due to:

• improvements in processes
• an increase in questions
• the expansion to the schedule made over the period.

There were over 1,400 public and multinational taxpayers that made disclosures against a Category C question in 2022–23. This has increased 14% over the 4 years from 2019–20 to 2022–23. These taxpayers reported 4,208 disclosures against Category C questions in 2022–23, which has more than doubled over the 4 year period to 2022–ם–23

Figure 1: RTP lodgments and disclosures from 2019–20 to 2022–23

You can also view data for RTP lodgments and disclosures by year in table format.

Note:

• Nil RTP disclosures refer to taxpayers that have lodged an RTP schedule but do not have any arrangements to disclose.
• This graph only includes questions that are current for public and multinational businesses in 2022–23. Taxpayers may have made disclosures on questions that were current in prior years, but which are not included for comparative purposes.

Disclosures by public advice and guidance product

Most Category C questions ask taxpayers to disclose whether they have arrangements covered by specific ATO public advice and guidance products, including taxpayer alerts and PCGs. The majority of disclosures relate to PCGs, which may apply to an entity irrespective of the risk level self-assessed by the entity.

Figure 2: proportion of disclosures by public advice and guidance product for 2019–20 to 2022–23.

You can also view data for the proportion of disclosures by public advice and guidance product in table format.

Disclosures by PCG related questions

The following RTP questions relate to PCGs. Table 2 and Figure 3 provide a high-level summary and the number of disclosures for each question.

Table 2: 2022–23 Category C, PCG related disclosures

Question number	PCG topic
7	Mobile offshore drilling units
9	Offshore hubs
14 and 23	Related party financing arrangements
22	Hybrid arrangements
24	Inbound supply chains
27 and 37	Arm's length debt test
39	Imported hybrid mismatch rule

Figure 3: disclosures by PCG related questions for 2019–20 to 2022–23.

You can also view data for the disclosures by PCG related questions in table format.

Disclosures by taxpayer alert related questions

The following RTP questions relate to Taxpayer alerts. Table 3 and Figure 4 provide a high-level summary and the number of disclosures for each question.

Table 3: 2022–23 Category C, Disclosures on arrangements subject to taxpayer alerts

Question number	Taxpayer alert topic
2	Funding special dividends or buybacks
3	Bifurcated procurement hubs
11, 17 and 33	Related party finance
10	Thin capitalisation
12	Business fragmentation
13	Research and development
25	Payments connected with intangibles
26	Multiple entry consolidated groups
32	DEMPE of intangible assets
34	Interest withholdings tax
35	Multiple entry consolidated groups
36	Derivatives
41	Treaty shopping arrangements (new question)

 

Figure 4: disclosures by taxpayer alert related questions for 2019–20 to 2022–23.

Note: No responses were received for questions 2, 33 and 36.

You can also view data for disclosures by taxpayer alert related questions in table format.

Disclosures on other questions

The following RTP questions relate to other areas of concern. Table 4 and Figure 5 provide a high-level summary and the number of disclosures for each question.

Table 4: 2022–23 Category C, Other questions

Question number	Topic
16	Consolidation churning rules
19	Settlements
21	Unamended mistakes or omissions
42	Global intangible low-taxed income (new question)

Figure 5: disclosures on other questions for 2019–20 to 2022–23.

You can also view data for the number and percentage of disclosures on other questions in table format.

Self-assessing risks related to arrangements

PCGs provide a framework for corporate taxpayers and their boards to self-assess the risk associated with their arrangements and understand our likely compliance response. Self-assessment is voluntary, but we consider it best practice for corporate taxpayers to include self-assessment under PCGs as part of their standard tax governance processes.

If a taxpayer hasn’t undertaken the self-assessment, they must disclose a high-risk rating in the schedule or tell us they haven't applied the PCG. This alerts us to examine the arrangement more closely to obtain confidence about the tax outcome.

Taxpayers must disclose their self-assessed risk rating in the corresponding Category C question. In some cases, they may be required to disclose multiple arrangements, therefore the greatest number of disclosures are against PCG linked questions.

PCG related disclosures

Non-resident owned MODUs: question 7

Overview of question 7

Practical Compliance Guideline PCG 2020/1 sets out the transfer pricing risks for projects involving the use in Australian waters of non-resident owned mobile offshore drilling units (MODUs). These MODUs include drill-ships, drilling rigs, pipe-laying vessels, and heavy-lift vessels. The risk framework in PCG 2020/1 enables taxpayers to self-assess the transfer pricing risks for these arrangements.

Findings from question 7

Table 5: Disclosures for question 7, 2019–20 to 2022–23

Disclosure	No MODUs	Medium risk	High risk	Not disclosed	White zone	Total
2019–20	3	0	1	1		5
2020–21	1	2	1	0		4
2021–22	1	1	3	0	1	6
2022–23	1	0	3	0	0	4

In 2022–23, 3 taxpayers disclosed 3 high-risk arrangements. It has been indicated that this is due to market conditions which have led to a fall in their operating margins. These arrangements will be reviewed as part of our engagement and assurance programs.

Question 7 was removed from the 2023–24 RTP Instructions as the information is collected from other means. This will therefore be the last year of reporting on this question.

Offshore hubs: question 9 disclosures

Overview of question 9

Practical Compliance Guideline PCG 2017/1 provides guidance on transfer pricing issues related to centralised operating models involving procurement, marketing, sales, and distribution functions.

We are concerned with the mispricing of services and functions relating to the sales and marketing of goods and commodities provided by international related parties, and the risk of inappropriate structuring of marketing hubs. We monitor offshore procurement hubs that supply 'indirect' or 'non-core' goods or services (non-core product) to an Australian entity.

Figure 6: disclosures on question 9 in 2022–23.

You can also view data for the disclosures on question 9 in 2022–23 in table format.

Note:

• PCG 2017/1 asks taxpayers to make a disclosure for each hub arrangement they have in place.
• In 2020–21, arrangements that did not apply the risk methodology or calculate the tax impact were separated from the high-risk category. Disclosures categorised as PCG not applied remain a high-risk focus.

Disclosures on marketing hubs

Figure 7: comparison of risk zone disclosures on marketing hubs in question 9 for 2019–20 to 2022–23.

You can also view data for the comparison of risk zone disclosures on marketing hubs in question 9 in table format.

Marketing hubs findings

In 2022–23, 118 taxpayers disclosed 174 marketing hub arrangements. The number of marketing hub disclosures has increased just over 20% over the 4 years to 2022–23.

The top 3 commodities sold via offshore marketing hubs are iron ore, coal and liquified natural gas (LNG). Only a very small portion of all exports sold via offshore marketing hubs are for commodities not produced by the energy and resources sector.

There were 4 high-risk arrangements in 2022–23, all of which are currently under review or audit under our compliance and assurance programs. The proportion of high-risk disclosures was 2% in 2022–23, decreasing by 4% over the 4 years from 2019–20 to 2022–23.

In addition, 86% of disclosures were rated as low or white zone in 2022–23. The proportion of these disclosures has remained steady over the 4-year period to 2022–23.

The decreasing high-risk disclosures and high proportion of low and white zone disclosures indicates a positive behavioural shift for taxpayers undertaking these types of arrangements.

We continue to undertake a range of engagement activities in relation to the risk, including engagement with industry bodies and other jurisdictions and work through our compliance and assurance programs.

Information from other schedules such as the International Dealings Schedule (IDS) and CBC reporting are also used to understand and identify the risk.

Disclosures on non-core procurement hubs

Figure 8: Comparison of risk zone disclosures on non-core procurement hubs in question 9 for 2019–20 to 2022–23.

You can also view data for the comparison of risk zone disclosures on non-core procurement hubs in question 9 in table format.

Procurement hubs findings

Question 9 was extended to include non-core procurement hub arrangements in the 2018–19 schedule, resulting in a 75% increase in disclosures and a doubling of taxpayers making disclosures.

In 2022–23, 76 taxpayers disclosed 132 non-core procurement hub arrangements, a decrease from 145 disclosures in the previous year. This 9% decrease is largely attributable to one large taxpayer reporting less arrangements than in the previous reporting period, followed by 2 smaller taxpayers who also reported a reduction in such arrangements. Overall, there is no marked change in the year-on-year reporting trend for these arrangements other than the overall decrease in disclosures being made. There are however 2 noted shifts. Firstly, the number of low-risk disclosures increased by 14 (20%) over the last 4 years. Secondly, in line with the past 2 years, there continues to be no high-risk disclosures, indicating a continuation of the positive behavioural shift for taxpayers with these arrangements.

The large number of high-risk disclosures in 2019–20 was due to one taxpayer that is part of a Top 100 corporate group disclosing approximately 50 arrangements. In 2020–21, the previously high-risk disclosures were made under the new category 'High-risk - PCG not applied' – where a taxpayer does not apply risk methodology or calculate tax impact.

Related party finance: questions 14 and 23 disclosures

Overview of question 14 and 23

Practical Compliance Guideline PCG 2017/4 allows taxpayers to self-assess the tax risk of their cross-border related party financing arrangements.

Schedule 1 sets out the risk assessment framework to determine the risk rating of cross-border related party debt. We expect the pricing of related party debt to align with the commercial incentive of achieving the lowest possible 'all in' cost to the borrower.

Schedule 2 is used to determine the risk rating of related party derivative arrangements.

Schedule 3 was introduced in 2020–21 and is related to outbound interest-free loans between related parties. It outlines the factors under which the risk score assigned to outbound interest-free loans made between related parties may be modified for the purposes of Schedule 1.

Given the prevalence and significant tax outcomes involved, we actively investigate these arrangements. We continue to undertake assurance activities on arrangements disclosed in the red and amber zones by Top 100 and 1,000 taxpayers. We have strategies in place to address high-risk arrangements where the loan amounts are less significant, including where the disclosures come from taxpayers in the medium and emerging population segment.

The review of related party financing arrangements is an inherent element of the assurance work we undertake. This involves reviewing the application of PCG 2017/4 against the taxpayer’s relevant loan agreements and transfer pricing documentation.

 

Figure 9: disclosures on questions 14 and 23 for 2022–23.

You can also view data from disclosures on questions 14 and 23 in table format.

Note:

• Not disclosed refers to disclosures by taxpayers who included the question number but didn’t include the subcategory number on their schedule.
• Schedule 3 was introduced in 2020–21 with its own separate risk zone sub-categories to distinguish outbound interest free loans as outlined under Schedule 3 of PCG 2017/4.

In 2020–21, an additional category for question 14 was added where Schedule 1 and 3 of PCG 2017/4 were not applied; these are included under the PCG not applied category. Where a taxpayer does not apply the PCG we treat this as high-risk as it requires us to review the arrangements to establish the existence or otherwise of risk.

Findings from question 14

Disclosures on related party financing

Figure 10: comparison of risk zone disclosures on related party financing arm's length conditions in question 14 for 2019–20 to 2022–23.

You can also view data on the numbers and percentages of risk zone disclosures on related party financing arm's length conditions in question 14 in table format.

Note:

• Not disclosed refers to disclosures by taxpayers who included the question number but didn’t include the subcategory number on their schedule.
• Schedule 1 risk zone sub-categories have been combined with Schedule 3 to provide a complete picture of disclosures made and historical comparison.
• From 2020–21 reporting requirements changed and taxpayers were required to report their self-assessed risk zone for their 3 most material arrangements and their highest risk arrangement if that was not already disclosed. This changed the number of disclosures made from one disclosure per taxpayer to up to 4 per taxpayer. This resulted in a 30% increase in the number of disclosures made.

The number of disclosures doubled over the last 4 years from 2019–20 to 2022–23, largely due to the change in reporting requirements for question 14. Question 14 receives the highest number of disclosures, with over 2,140 disclosures made in 2022–23.

Since the change in the reporting requirements in 2021, the spread of risk ratings has remained relatively stable with a slight increase in low-risk ratings.

The information from question 14 is analysed with other information such as CBC and IDS to better understand the risk. Through our compliance programs we have coverage of over 80% of all inbound interest-bearing related party debt.

Findings from question 23

Disclosures on related party financing derivatives

Figure 11: comparison of risk zone disclosures on related party financing derivatives in question 23 for 2019–20 to 2022–23.

You can also view data on numbers and percentages of risk zone disclosures on related party financing derivatives in question 23 in table format.

Note:

• Not disclosed refers to disclosures by taxpayers who included the question number but didn’t include the subcategory number on their schedule.
• In 2020–21, reporting requirements for question 23 changed and taxpayers were required to report their self-assessed risk zone for their 3 most material arrangements, and their highest-risk arrangement if that was not one of their 3 most material arrangements.

There were 93 disclosures made for question 23 in 2022–23, a decrease of 8 on the previous year. There were 5 high-risk disclosures made in 2022–23, a 38% decrease from the previous year. All the high-risk disclosures either have been reviewed or are under review as part of our compliance and assurance program. More than 68% of disclosures made under question 23 have had or are currently undergoing compliance activity.

The proportion of high-risk arrangements has declined over the 4 years from 15% in 2019–20 to 5% in 2022–23. The proportion of low-risk arrangements has increased over the 4 years from 60% in 2019–20 to 81% in 2022–23, indicating a positive behavioural shift for taxpayers entering into related party derivative arrangements.

Hybrid arrangements: question 22, question 27 and question 39

• Question 22
• Question 27
• Question 39

Question 22

The hybrid mismatch rules are intended to deter the use of hybrid mismatch arrangements that result in double non-taxation outcomes by exploiting differences in the tax treatment of an entity or financial instrument under the income tax laws of 2 or more countries.

Question 22 relates to Practical Compliance Guideline PCG 2018/7, which has been designed to assist taxpayers to restructure into compliant replacement arrangements. These arrangements eliminate double non-taxation outcomes, consistent with the underlying objective of the hybrid mismatch rules.

We use data available from schedule disclosures and other information sources, such as question 49 on the IDS, to identify and monitor hybrid restructures undertaken and arrangements maintained by taxpayers. Our focus is on ensuring compliance with the hybrid mismatch rules through ongoing engagement.

Table 6: Disclosures on question 22, 2019–20 to 2022–23

Disclosure	Low risk	Not low risk	Not disclosed	Total
2019–20	74	4	0	78
2020–21	16	0	0	16
2021–22	9	1	4	14
2022-23	6	0	2	8

Figure 12: comparison of risk zone disclosures on hybrid arrangements in question 22, 2019–20 to 2022–23.

You can also view data on numbers and percentages of risk zone disclosures on hybrid arrangements in question 22 in table format.

Findings from question 22

The number of disclosures for question 22 continued to decrease, with 8 disclosures made in 2022–23, which is a 43% decrease from 2021–22. This is in line with our expectations that most of the restructuring would have occurred closer to the implementation of the hybrid mismatch rules on 1 January 2019.

There were 2 disclosures made without a subcategory provided. We use data from other information sources, including question 49 on the IDS to gain a better understanding of the restructure being disclosed. If required, these disclosures will be queried as part of our compliance and assurance program.

There were 6 disclosures that self-assessed as low risk, we have or will verify these self-assessments when we engage with these taxpayers through our compliance and assurance programs.

Question 27

This is the third year of reporting under question 27, which was introduced in 2020–21. This question relates to payments made under structured arrangements which gave rise to imported hybrid mismatches.

The objective of the imported hybrid mismatch rule is to maintain the integrity of the other hybrid mismatch rules by removing any incentive for multinational groups to enter into hybrid mismatch arrangements.

Law Companion Ruling LCR 2019/3 provides the Commissioner's view of the law in relation to the phrase 'structured arrangement', and Practical Compliance Guideline PCG 2019/6 helps taxpayers assess whether a payment giving rise to a hybrid mismatch is made under a 'structured arrangement'.

Question 27 has been removed from the 2024 RTP Instruction in the annual update as the information is collected through other means.

Findings from question 27

Question 27 had 6 disclosures in 2022–23. One disclosure has been reviewed as part of our compliance and assurance program and received a high level of assurance in relation to the imported hybrid mismatch rule.

The remaining 5 disclosures had discrepancies between information disclosed on the RTP schedule and the IDS. These may be reviewed under our compliance and assurance programs.

Question 39

This is the second year of reporting under question 39, which was new to the RTP instructions in 2021–22. It requires taxpayers to disclose self-assessed risk ratings using Practical Compliance Guideline PCG 2021/5.

PCG 2021/5 contains practical guidance as to the ATO’s assessment of the relative levels of tax compliance risk associated with imported hybrid mismatches addressed by Subdivision 832-H of the Income Tax Assessment Act 1997. It sets out the Commissioner’s approach to reviewing whether a taxpayer has undertaken reasonable enquiries in relation to the imported hybrid mismatch rule for non-structured arrangements.

Figure 13: comparison of risk zone disclosures on hybrid arrangements in question 39 for 2021–22 and 2022–23.

You can also view data on numbers and percentages of risk zone disclosures on hybrid arrangements in question 39 in table format.

Findings from question 39

There were 1,129 disclosures made in 2022–23, a 10% increase from 2021–22. PCG 2021/5 is relevant to any Australian taxpayer that seeks a deduction for a cross-border payment made to a member of its Division 832 control group and therefore we expect a large number of disclosures for this question.

The number of high-risk – PCG not applied disclosures has significantly reduced in 2022–23. This was expected as PCG 2021/5 was released on 16 December 2021, part way through the 2021–22 income year. As a result, approximately 20% of taxpayers disclosed that they had insufficient time to self-assess against PCG 2021/5 in 2021–22. The increase in the number of taxpayers applying PCG 2021/5 in 2022–23 resulted in an increase in the number of disclosures across the remaining risk zones.

In 2022–23 more than 80% of disclosures were rated as low-risk and a further 15% of disclosures were rated as low-moderate risk or white zone. This indicates that more than 95% of taxpayers have applied PCG 2021/5 and followed the ATO recommended approaches to demonstrate compliance with Subdivision 832-H.

There were 11 disclosures rated as very high-risk, which account for 1% of disclosures made in 2022–23. Of these, 6 have been reviewed as part of our compliance and assurance program with recommendations to improve the process implemented to demonstrate compliance with the imported hybrid mismatch rule. The remaining very high-risk disclosures may be reviewed under our compliance and assurance programs.

In 2022–23, 11 disclosures were rated as PCG not applied and 10 disclosures did not provide a self-assessed risk rating. We consider these disclosures to be high-risk and they may be reviewed under our compliance and assurance programs.

The disclosures made under question 39 are used with other information sources such as the IDS to better assess risk with the imported hybrid mismatch rule.

Inbound distribution arrangements: question 24 disclosures

Overview of question 24

Practical Compliance Guideline PCG 2019/1 provides a framework for taxpayers to assess the transfer pricing risk of their inbound distribution arrangements. Our focus for PCG 2019/1 is on transfer pricing outcomes associated with the activities of inbound distributors including the distribution of goods purchased from related foreign entities for resale, and the distribution of digital products or services where the intellectual property in those products or services is owned by related foreign entities.

We review the reasonableness of these disclosures as part of our Justified Trust program. Under this program we review the top 1,100 public groups and multinationals in Australia including many inbound distributors. We use our data and analytics capabilities to assess the reasonableness of disclosures of distributors outside this population who are required to complete the RTP schedule. We employ a range of approaches to detect and address any incorrect disclosure or non-disclosure.

Figure 14: comparison of risk zone disclosures on inbound distribution arrangements in question 24, 2020–21 to 2022–23.

You can also view data on numbers and percentages of risk zone disclosures on inbound distribution arrangements in question 24 in table format.

Note:

• Not disclosed refers to disclosures by taxpayers who included the question number but didn’t include a valid sub-category on their schedule.
• PCG not applied refers to taxpayers who choose not to follow the PCG or taxpayers who fall within any of the following
  • entities that have adopted the distributor simplified transfer pricing record keeping option in PCG 2017/2
  • paragraph 49 of PCG 2019/1
  • where an entity has an inbound distribution arrangement but an EBIT margin is unable to be determined and the taxpayer has not applied PCG 2019/1.
• PCG 2019/1 doesn't provide for an equivalent white zone similar to other PCGs covered in this report.

Findings from question 24

There has been an increasing trend in the number of question 24 disclosures made each year, with a 12% increase over the last 4 years since 2019–20. In addition, there was:

• a 2% increase in 2022–23 from the prior year
• level of high-risk disclosures decreased by nearly 27% over the 4-year period and by 6% from the prior year
• the number of low-risk disclosures increased by 22% over the 4-year period and by 13% from the prior year.

These findings indicate a positive shift in behaviour for disclosures regarding these arrangements. However, we do have some concerns that taxpayers may be mischaracterising themselves as low-risk distributers when in fact they are not. We will look to improve the guidance in this area, which may impact the risk profile of the population.

Most taxpayers who disclosed an inbound distribution arrangement fall within our Top 100 or 1,000 populations and are subject to review under our compliance and assurance programs or through the advance pricing arrangement (APA) program.

Arm's length debt test: question 37 disclosures

Overview of question 37

The arm's length debt test is one of the tests available to establish an entity's maximum allowable debt for thin capitalisation purposes. The test focuses on identifying an amount of debt a notional stand-alone Australian business would reasonably be expected to borrow, and what independent commercial lenders would reasonably be expected to lend on arm's length terms and conditions.

Practical Compliance Guideline PCG 2020/7 sets out our compliance approach in respect to the arm's length debt test. It also provides a differentiated risk assessment framework for taxpayers to self-assess their perceived level of risk.

Disclosures made under question 37 provide meaningful insights into the population of taxpayers relying on arm's length debt test. The subcategories provide further understanding of the risk profile of taxpayers.

Figure 15: comparison of risk zone disclosures for question 37, 2020–21 to 2022–23.

You can also view data on the numbers and percentages of risk disclosures for question 37 in table format.

Findings from question 37

This is the third year of reporting for question 37. There were 81 disclosures received in 2022–23, an increase of 8 disclosures and 8% from the previous year.

Of these, 33% of disclosures in 2022–23 are rated as low or white zone, with a further 58% rated as medium-risk. Low-risk has increased more than 70% over the 3 years, while medium-risk has increased by almost 40%, Although we have observed an increase in disclosures over the 3 years, we note that respondents are increasingly adopting low-risk and medium-risk (and therefore following 'best practice' in a manner consistent with  PCG 2020/7) approaches to applying the arm’ s length debt test, which have risen 380% and 62% respectively during this period.

For 2022–23 there were 5 disclosures rated as high, 4 of which are subject to compliance activity and the remaining disclosure is under consideration. There are 2 disclosures that have not applied the PCG, these have been reviewed and may be referred to our compliance and assurance program.

Disclosures made under question 37 are compared to other data sources to understand the risk and the population. A discrepancy between sources will be reviewed under our compliance and assurance programs.

Disclosures on arrangements subject to taxpayer alerts

Taxpayer alerts

We issue taxpayer alerts to warn taxpayers of our concerns about new or emerging arrangements that we consider might pose a high-risk, such as tax avoidance arrangements. Our aim is to share our concerns early to help taxpayers make informed decisions about their tax affairs. This also limits the proliferation of the arrangements in the market.

Our experience shows most large corporate taxpayers don’t wilfully take on tax risk. Taxpayers will often engage with us to gain certainty on arrangements we’ve indicated we have concerns with. They may apply for a ruling or APAs or simply not enter into these arrangements, preventing proliferation.

You can find out more about Taxpayer alerts.

Related party finance: questions 11, 17, 33

Table 7: Disclosures on questions related to financing arrangements, 2020–21 to 2022–23

Question	Topic	Taxpayer alert	2020–21	2021–22	2022–23
11	Financing – round robin arrangements	TA 2016/10	5	5	3
17	Financing – WHT	TA 2018/4	11	10	9
33	Mischaracterisation arrangements connected with foreign investment	TA 2020/2	0	0	0

Risks associated with related party financing arrangements continue to be a key focus for us. We use the disclosures under questions 11, 17 and 33 together with data from the IDS and CBC reports to identify and assess these risks.

Question 11

This question addresses Taxpayer alert TA 2016/10 Cross-border round robin financing arrangements.

The concern with these arrangements is that they involve funding of an overseas entity or operations by an Australian entity, where the funds are subsequently provided back to the Australian entity, or its Australian associate, in a manner which purportedly generates Australian tax deductions while not generating corresponding Australian assessable income.

Findings from question 11

There were 3 disclosures at question 11 in 2022–23, a decrease from 5 in 2021–22. All of which have been reported in prior years. These have been or will be reviewed as part of our compliance and assurance programs.

Question 17

Question 17 relates to Taxpayer alert TA 2018/4 Cross-border arrangements where income tax deductions are claimed in Australia on an accrual basis but withholding tax is not paid when deductions are claimed. We are concerned with tax-driven structuring, claiming a deduction where a payment is not expected to take place and tax issues that arise form how the transaction is affected.

Findings from question 17

There were 9 disclosures made at question 17 in 2022–23, a decrease from 10 in 2021–22. All disclosures have been reviewed. Further engagement will occur as part of our compliance and assurance programs.

Question 33

Question 33 was added to the schedule in 2020–21 and relates to mischaracterised arrangements and schemes connected with foreign investment into Australian entities as outlined in TA 2020/2. TA 2020/2 is concerned with cross-border arrangements that mischaracterise the structure used by foreign investors to invest directly into Australian businesses.

Findings from question 33

There were no disclosures made for question 33, as expected for this risk. The risk remains part of our compliance and assurance program.

Business fragmentation: question 12

Question 12 relates to arrangements involving the fragmentation of integrated trading businesses in order to re-characterise trading income to passive income to achieve a more favourable tax outcome as described in Taxpayer alert TA 2017/1. Our concerns arise where an arrangement fragments integrated trading businesses to re-characterise trading income into more favourable passive income.

We combine the information obtained from disclosures at question 12 with data from transitional election forms to risk assess stapled groups. Those eligible taxpayers that have lodged a valid transitional election form may be entitled to claim transitional relief and continue to apply the lower 15% withholding rate during the transition period.

Findings from question 12

Table 8: Disclosures on questions related to business fragmentation, 2020–21 to 2022–23

Question	2020–21	2021–22	2022–23
Question 12	6	4	4

There were 4 disclosures at question 12 in 2022–23. Of the 4 disclosures, 2 have been subject to a recent review and have been considered as part of our compliance and assurance program.

We understand that of the taxpayers that have lodged valid transitional election forms, many have not accurately reflected managed investment trust cross staple arrangements income. We are engaging with taxpayers that have interests in staple structures to ensure the application of integrity measures and appropriate pricing of financial arrangements.

R&D: question 13

Taxpayer alerts for the Research and development (R&D) tax incentive relate to claims for ineligible activities and expenditure, including R&D tax incentive claims for ordinary business activities. Specific concerns are also identified within the following industry sectors:

• Taxpayer alert TA 2017/2 (construction activities)
• Taxpayer alert TA 2017/3 (any business activities)
• Taxpayer alert TA 2017/4 (agricultural activities)
• Taxpayer alert TA 2017/5 (software development activities).

Findings from question 13

Table 9: Disclosures on questions related to R&D, 2020–21 to 2022–23

Question	2020–21	2021–22	2022–23
Question 13 TA 2017/2	0	0	0
Question 13 TA 2017/3	3	3	3
Question 13 TA 2017/4	1	1	1
Question 13 TA 2017/5	7	5	5
More than 1 taxpayer alert	3	3	5
Total	14	12	14

There were 14 disclosures at question 13 in 2022–23, a slight increase of 2 from the previous year.

The majority of disclosures for question 13 relate to TA 2017/3 (3 disclosures) and TA 2017/5 (5 disclosures). A further 5 disclosures relate to multiple taxpayer alerts and one relates to TA 2017/4. Where appropriate, we refer concerns identified with eligibility of R&D activities to AusIndustry, who are responsible for this aspect of the R&D tax incentive.

Payments connected with intangibles: question 25

This information is about the characterisation of payments connected with intangibles as part of question 25 disclosures.

Overview of question 25

Question 25 relates to deductions for expenses incurred under an arrangement with offshore parties using intangible assets held by an offshore party, as described in Taxpayer alert TA 2018/2. Question 25 was added to the RTP schedule in the 2019–20 income year to inform whether intangible assets have been appropriately recognised and Australian royalty obligations have been met.

Findings from question 25

Table 10: Disclosures on questions related to intangibles as part of question 25, 2020–21 to 2022–23

Question	2020–21	2021–22	2022–23
Question 25	20	18	16

There were 16 disclosures at question 25 in 2022–23:

• 13 disclosures indicated the taxpayer had considered the arm’s length principle in determining the appropriate consideration for the use of the intangible assets, but the arrangement wasn't covered by section 284–255 (Taxation Administration Act 1953) compliant transfer pricing documentation.
• one disclosure indicated that the taxpayer hasn't applied the arms' length principle in determining the appropriate consideration for the use of intangible assets,
• one disclosure did not appropriately recognise an amount as consideration for the use of the intangible
• one did not disclose the subcategory.

These will be reviewed through compliance and assurance activities.

We will continue to monitor and take action in relation to arrangements described under TA 2018/2 as part of our compliance and assurance programs.

All other taxpayer alert questions

The following questions relate to taxpayer alerts that involve either nil disclosure or a small number of disclosures and don't fit within a grouping above. Accordingly, we have provided the information in a single table form.

Other information such as CBC and IDS are also used to understand and support disclosures.

Table 11: Disclosures on all other taxpayer alert questions, 2020–21 to 2022–23

Question	Topic	Taxpayer alert	2020–21	2021–22	2022–23
2	Funding special dividends or buy backs	TA 2015/2	0	0	0
3	Bifurcated procurement hubs	TA 2015/5	4	6	4
7	Lease in lease out arrangements	TA 2016/4	4	6	4
10	Thin capitalisation	TA 2016/9 & TD 2020/2	5	4	4
26	MEC group and CGT assets	TA 2019/1	1	1	1
32	DEMPE of intangible assets	TA 2020/1	1	1	2
34	Interposed entities to avoid withholding tax	TA 2020/3	0	0	1
35	MEC groups	TA 2020/4	6	6	6
36	Derivative instruments	TA 2020/5	0	0	0
41	Treaty shopping	TA 2022/2	-	-	1

Disclosures on other questions

Material changes to settlement positions: question 19

Question 19 relates to breaches or material changes to facts covered by settlement deeds and future compliance arrangements. It is an important feature of our settlements that we achieve behavioural change and secure future tax outcomes. We continue to monitor compliance with these agreements.

Findings from question 19

There were 3 disclosures at question 19 in 2022–23, a decrease of 5 on the previous year. We engaged directly with each taxpayer and confirmed all are taking active steps to ensure compliance with the terms of the settlement deeds or future compliance arrangement.

All other questions

The following provides a summary of all other questions.

• Question 16 was removed from the RTP schedule in 2023–24 and this will therefore be the last year of reporting.
• Question 42 was new in 2022–23 and it focused on Taxation Determination TD 2022/9. This question requires taxpayers to make a disclosure if they have treated global intangible low-taxed income (GILTI) as 'subject to foreign income tax' in the US under section 832-130 of the ITAA 1997.

 Table 12: Disclosures on other questions, 2020–21 to 2022–23

Question	Topic	2020–21	2021–22	2022–23
16	The application of the consolidation churning rule to arrangements entered into by a multiple entry consolidated group	15	13	10
21	Unamended mistakes or omissions made in the income tax return	29	37	28
42	Treatment of global intangible low-taxed income as subject to foreign income tax in the US for the purpose of the hybrid mismatch rules in Division 832 of the ITAA 1997. Outlined in TD 2022/9.	n/a	n/a	7