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New guidance for Australian R&D tax incentive 2024.

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Over the last 6-12 months, it has become increasingly important for clients accessing the R&D tax incentive under an ‘Australian owned’ or entrepreneurial structure (under which their Australian entity is conducting R&D on its behalf) to ensure their Australian entity has the operational capacities to manage and direct any Clinical Research Organisation (CRO) used.

This, in turn, helps to ensure that such a structure can withstand scrutiny from both the Australian and foreign tax authorities to protect the value that the Australian R&D tax incentive intends to secure for the Australian economy on a long-term basis.

In the lead-up to and after December’s two Taxpayer Alerts aimed at the R&D tax incentive and last month’s PCG 2024/1 covering intangible asset arrangements (all of which also dealt with the importance of substance), Acclime has been working with each of its clients and their Australian transfer pricing advisors individually to flag anticipated guidance before the release of the same, and, post-release, to consider the impact of the updated guidance in their particular facts and circumstances.

Ultimately, whether an Australian entity can be considered an entrepreneur depends on its functions, risks, assets profile, and the entity’s substance (i.e. in the form of personnel or assets). These are key considerations taken into consideration as part of a transfer pricing review, which also takes into account the level of direction and control over a client’s key business functions occurring and being driven by personnel in Australia. This assessment must consider numerous factors, including the business’s lifecycle, the Australian entity’s functionality and investment in Australia.

For several years, Acclime has required all of its clients accessing the R&D tax incentive to obtain Australian transfer pricing advice, which supports the intra-group relationship it has chosen to adopt (whether Australian-owned or foreign-owned) and to monitor regularly and, if necessary, update that advice to reflect current facts and circumstances as a client progresses through the R&D phase towards commercialisation. The recent guidance from the ATO further illustrates why Australian transfer pricing advice is critical to enable a holistic risk assessment and support for the same. Acclime will continue to use the ATO’s updated guidance as an opportunity to engage with its clients and their Australian transfer pricing advisors to assess individual compliance with transfer pricing requirements in light of a client’s particular facts and circumstances.

New guidance for Australian R&D tax incentive 2024

About Acclime.

Acclime helps established multinational companies and startups start and operate their business in Australia and the APAC region. By seamlessly navigating our clients through the complexities of Australian laws and bureaucracy, we allow them to reclaim valuable time and fully focus on growing and developing their business.