• Service: Tax, Global Transfer Pricing Services
  • Type: Regulatory update
  • Date: 31/01/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Sean Wright

Sean Wright
Senior Manager, Tax

+61 2 9346 5531

Will your Market Support Payments pass the ATO’s sniff test? 

by Sean Wright, Transfer Pricing Specialist

In the wash up of the Global Financial Crisis a number of international articles discussed its impact and scenarios that could be effective transfer pricing (TP) strategies, including the use of Market Support Payments (MSP) to international subsidiaries. These were believed reasonable to support the group’s focus in a particular country and remain strategically placed to benefit from the eventual upswing in market conditions.

Unfortunately, the ATO has identified some of these types of payments to be of a capital nature. While specific marketing support strategies may be acceptable when related to products, services etc. the ATO has taken the view that some are for the purpose of providing financial support through the use of the tax system to fund/subsidise investment strategies. Support for this view was seen in the failure of the local entity’s competitors, effectively increasing the local subsidiary’s market share.


Such arrangements are often structured as follows:


  • a profit level indicator (PLI) (e.g. (EBIT)/Sales) range for the foreign entity
  • a floor and ceiling outside this range
  • results between the top/bottom of the range and the ceiling/floor, a royalty payment to Australia or MSP to the foreign subsidiary occurs
  • results outside the ceiling/floor are at the risk or benefit of the foreign subsidiary


In reviewing such arrangements Private Rulings are generally suggested, as some appear to be more akin to capital injections to ensure sufficient operational cash flow for continued trading.


Recently TD 2014/D1 (replacing TD 2013/D3) was released, focusing on instances where such payments are of a capital nature.


This scenario provides important lessons in TP work. Firstly, TP does not exist in isolation of other tax issues and secondly, the dealings must be understood and correctly characterised. Without a strong focus on this aspect of analysis outcomes are unlikely to be correct.


Share this

Share this


Our Tax Team assists with corporate tax, transfer pricing, indirect tax, international executive services, R&D incentives, superannuation and more.

Global Transfer Pricing Services

Our international Global Transfer Pricing Services team can help generate tax efficiencies and reduce the risk of challenges from revenue authorities.