An Australian company may conduct development work while receiving funding, instructions or intellectual property from an overseas group. That does not make the R&D tax position straightforward in either direction. The relevant arrangements need to be understood: who benefits from the work, who controls it, who bears the financial risk and which entities are relevant to the claim.
Identify who the activities are conducted for
ATO guidance considers effective ownership of results, control over activities and financial risk when assessing the major beneficiary of R&D. It warns that formal arrangements should be considered alongside their substance. [R9] The analysis should not stop at the Australian company's name on an invoice or a clause saying that it owns intellectual property.
Map the agreements between the entities and compare them with actual conduct. Who selects the research programme? Who can change it? How are costs funded and recovered? Who can commercialise the results? These questions help organise the factual review. The legal conclusion requires consideration of the applicable provisions and the overall arrangements rather than a checklist with automatic outcomes.
Do not assume foreign involvement ends the enquiry
There are specific rules dealing with activities conducted for associated foreign corporations. Whether those rules are relevant, and whether their requirements are met, needs separate analysis. [R9] A claim should identify the basis on which it is made rather than assume that every Australian subsidiary follows the same path or has the same entitlement.
For a hypothetical group, the Australian team may conduct substantial technical work while the parent controls strategy and receives the commercial benefits. Another arrangement may give the Australian entity meaningful control and exploitation rights. Similar organisational charts can therefore conceal different facts. Review the agreements, decision-making and financial arrangements together before adopting a position.
Review the group for turnover purposes
Aggregated turnover is a separate question from who benefits from an activity. The ATO's grouping guidance addresses connected entities and affiliates when assessing the relevant turnover position. [R10] Looking only at revenue earned by the Australian claimant may therefore be insufficient. Ask your tax adviser to assess the group and any relevant changes in ownership or control.
Provide a dated organisation chart, ownership information and the financial details your adviser requests. Explain changes during the income year instead of presenting only the structure at year end. Where information sits overseas, allow time to obtain it and resolve differences in terminology. A clear explanation of the group can prevent repeated questions later.
Keep the analysis consistent
Compare the R&D position with the agreements, accounts and other descriptions of the arrangements. Identify inconsistencies and obtain advice about their significance. Do not change labels simply to support a preferred claim. A durable position is one that can be explained using the actual rights, responsibilities and conduct of the parties.
Ardian Law assists with complex R&D arrangements involving overseas parents and related entities. Call 02 8111 7700 with the group structure, relevant agreements and proposed claim basis to discuss a focused legal review alongside your tax adviser.