The Australian Taxation Office updates PCG 2019/1 for inbound distributors

Effective 22 April 2026, the Australian Taxation Office (ATO) has provided an update to Practical Compliance Guideline (PCG) 2019/1 dealing with transfer pricing for inbound distribution arrangements. The revision, being the first since 2019, follows the release of draft guidance in late 2025 and reflects more current market evidence and compliance expectations.

The key changes include:

• Modification to the scope of arrangements captured by the PCG through a new definition of what is considered a distributor
• Revised profit markers for selected industry categories
• A new white zone for certain arrangements that have recently been reviewed or agreed with the ATO.

Taxpayers relying on the PCG for risk assessment should revisit their analysis to confirm their arrangements remain within scope, or may fall within a higher risk category, particularly where the PCG has been used to support transfer pricing documentation or Reportable Tax Position (RTP) schedule disclosures.

Modifications to scope and definition of “distributor”

The following discussion highlights the key areas in which the updated PCG provides revised guidance on scope and the types of arrangements captured by the framework:

Scope of inbound distribution arrangements – Tangible goods

The updated PCG broadens the concept of an inbound distributor for tangible goods by removing the requirement that distribution be the taxpayer’s predominant business activity. Instead, the ATO now applies a broader factual assessment of whether the entity is carrying on inbound distribution arrangements. As a practical matter, this means the PCG may now apply to businesses with significant distribution activities even if distribution is not their primary business line.

This will increase the number of taxpayers needing to self-assess application of the PCG and, as a consequence, a requirement to disclose their risk zone via the RTP schedule.

Factors listed that should be considered are as follows (refer to paragraph 24 of PCG 2019/1):

• Main business activity disclosed on the tax return
• Proportion of tangible property expenditure of a revenue nature relative to cost of goods sold
• Proportion of tangible property expenditure of a revenue nature relative to total income
• Proportion of income from the sale of goods or digital products or services relative to other income
• Extent to which activities other than distribution activities are undertaken, for example, the extent of contract research and development services provided, and
• Operating practice of the specific industry in relation to distribution activities.

Scope of inbound distribution arrangements – Digital products or services

For digital products or services, however, the revised guideline limits the scope of inbound distribution arrangements by excluding entities that perform significant functions in creating or delivering the offering, such as through substantial local hosting infrastructure.

Permanent establishments

The update also excludes Australian permanent establishments of foreign entities from the scope of PCG 2019/1. In practice, branch structures will need to consider the separate profit attribution framework under Subdivision 815-C and any relevant tax treaty. This should be treated as a separate analysis rather than a PCG risk-zone assessment.

Transfer pricing methodology

Arrangements requiring complex, multi‑sided methodologies (such as profit split methods) are excluded from the PCG. This reflects the ATO’s intention that the guidance applies only to relatively simple inbound distribution models.

White zone

• The updated PCG introduces a new white zone risk category, applicable to arrangements meeting the following criteria:
  • Distribution arrangements recently reviewed, agreed or otherwise resolved with the ATO from a transfer pricing perspective. This will include that under an advance pricing arrangement (APA), settlement, court or tribunal outcome, or an ATO review with a low risk or high assurance result, and,
  • Where there have been no material changes in the comparability factors or pricing of the distribution arrangements since the APA, settlement, court decision, risk rating, etc.
• Where the white zone applies, it is stated that the ATO will not devote further compliance resources to the arrangement, and taxpayers will be able to disclose the white zone status in the RTP schedule.

Updated profit markers

The updated PCG revises the profit markers for selected industry categories, particularly in the life science and information and communication technology (ICT) sectors. These changes may affect a taxpayer’s existing PCG risk-zone outcome.

The practical effect of the revised profit markers is that some taxpayers may move into a lower risk zone without any change to their pricing.

Life science sector

BDO comment

The updated guidance reduces the profit markers for life science Category 1 and Category 2 distributors. Taxpayers in these categories should reassess their current PCG risk-zone outcomes using the updated thresholds. The profit markers for Category 3 remains unchanged.

For example, a Category 1 distributor earning an earnings before interest and taxes (EBIT) margin of 3.0 per cent may move from high risk under the previous guidance to medium risk under the updated guidance.

ICT sector

BDO comment

The updated guidance lowers the Category 1 profit markers for ICT distributors. Taxpayers in this category should revisit their current PCG risk-zone outcomes using the revised thresholds. The profit markers for Category 2 remains unchanged.

For example, a Category 1 distributor earning an EBIT margin of 3.0 per cent may move from high risk under the previous guidance to medium risk under the updated guidance

Taxpayers should carefully review the PCG calculation rules, including the treatment of abnormal or extraordinary items, interest, non-operating items and consistency across the relevant five-year weighted average period. Small differences in the calculation approach may affect the taxpayer’s risk-zone outcome.

The general distributor and motor vehicles profit markers appear to remain unchanged under the updated guidance.

What should taxpayers do now?

Taxpayers with inbound distribution arrangements should consider the following actions:

1. Confirm whether the arrangement remains within scope: Review the entity’s actual functions, assets and risks, and confirm whether the arrangement is properly characterised as an inbound distribution arrangement for the purposes of PCG 2019/1. Particular care is required where the Australian entity undertakes manufacturing, alteration, development, enhancement, significant technical, intellectual property (IP) related or non-distribution activities

2. Reassess the PCG risk zone: Recalculate the relevant EBIT margin using the updated profit markers and the PCG calculation rules. Taxpayers in the life science and ICT sectors should pay particular attention to the revised thresholds

3. Review transfer pricing documentation: Ensure the transfer pricing documentation supports both the PCG risk-zone outcome and the broader arm’s length position under Division 815. The documentation should explain the characterisation of the arrangement, the pricing methodology, the calculation of the relevant financial indicator and any material year-on-year changes

4. Consider RTP schedule implications: Taxpayers required to lodge an RTP schedule should consider whether the updated PCG changes their disclosure position, including whether a different risk-zone outcome is required

5. Assess possible white zone eligibility: Taxpayers with an existing APA, settlement agreement, court or tribunal outcome, or recent ATO review should consider whether the white zone may apply. This should be checked against the precise eligibility criteria in the current ATO publication.

PCG 2019/1 is a risk assessment tool, not a substitute for transfer pricing

It is important to note, the PCG is not a substitute for a transfer pricing analysis. The PCG remains a compliance risk framework and is not intended to determine whether an arrangement is actually at arm’s length under Division 815, nor does it remove the need to support the characterisation of the arrangement and the pricing outcome with contemporaneous transfer pricing documentation.

Transfer pricing is a multi-country concern and care should be taken to ensure that transfer pricing application can be supported from each country applicable to the distribution arrangement.

How BDO can help

BDO can assist taxpayers to assess whether PCG 2019/1 applies to their arrangements, recalculate their risk-zone outcomes under the updated profit markers, review RTP schedule disclosures and prepare contemporaneous transfer pricing documentation to support their position.

Please contact your local BDO transfer pricing adviser if you would like to discuss how the updated guidance may affect your Australian inbound distribution arrangements.