ATO Compliance for Australian Businesses Importing from China: What Changed in 2026

What Changed and Why

The ATO's 2026 compliance updates address three areas where the agency identified persistent problems: undervaluation through related-party arrangements, inadequate record-keeping for transshipment goods, and insufficient documentation for tariff concession claims.

Related-Party Valuation: The ATO has strengthened its focus on import transactions between related entities—Australian businesses owned or controlled by Chinese parent companies or affiliates. The concern is that prices in these transactions may not reflect arm's length pricing, resulting in reduced Australian tax liability through inflated cost of goods sold. The ATO now requires additional documentation for related-party import transactions and has increased the frequency of audit activity in this area.

Transshipment Documentation: Goods originating in China that pass through intermediate ports (Singapore, Hong Kong, Malaysia) are subject to more rigorous documentation requirements. The ATO wants to ensure that tariff concessions available for Chinese goods are legitimately claimed and that country-of-origin certificates accurately reflect where goods were manufactured. The agency has increased its use of verification requests to Chinese authorities and third-country customs agencies.

Tariff Concession Integrity: The ATO has audited thousands of tariff concession claims over the past two years and found a significant rate of non-compliance—businesses claiming concessions they were not entitled to, often due to inadequate understanding of the qualification criteria. The 2026 updates include clearer guidance on concession categories and more stringent documentation requirements to support claims.

Key Changes to Import Valuation Rules

The Transfer Pricing rules that apply to international related-party transactions now explicitly cover import valuation. This is not new in principle—the ATO has always had the power to adjust import prices that do not reflect arm's length terms—but the 2026 guidance makes the application to import transactions clearer and more specific.

For Australian businesses importing from Chinese suppliers, the implications are significant:

Documentation Requirements: You must maintain contemporaneous documentation demonstrating that your import prices reflect what unrelated parties would pay for comparable goods in comparable circumstances. This means comparable invoices for similar goods, market research, and records of any price negotiations with your supplier.

Profit Split Adjustments: If your business imports goods from a related Chinese entity and those goods are later sold in Australia with additional value added through marketing, distribution, or brand development, the ATO may adjust the import price to ensure your Australian entity captures an appropriate share of the profit. This is particularly relevant for businesses with exclusive distribution arrangements.

Service Fee Adjustments: The ATO is scrutinizing arrangements where Australian businesses pay management fees, service fees, or royalties to Chinese parent companies in addition to the cost of imported goods. The combined effect of these payments on the Australian tax base is under increased scrutiny.

Practical Implication: If you have a Chinese supplier that is related to your Australian business, you should review your import pricing documentation now. The ATO's enhanced focus in this area means the probability of an audit on these arrangements has increased substantially.

Updated Rules for Country of Origin

The rules for determining country of origin for Chinese goods have not changed, but the ATO's enforcement has intensified. This matters for two reasons: tariff classifications that depend on Chinese origin, and the application of any preferential tariff rates that may be available.

Substantial Transformation: For goods that incorporate components from multiple countries, the ATO applies the substantial transformation test to determine origin. Processing that merely adds value without changing the essential character of the imported goods does not change origin. The ATO's 2026 guidance clarifies that assembly operations in China that combine components from multiple countries may not qualify for Chinese origin certification if the final processing step is merely assembly.

Origin Documentation: The ATO requires evidence of origin that goes beyond a certificate from the Chinese supplier. Acceptable documentation includes:

• Manufacturing records demonstrating the location and nature of production processes
• Supplier declarations with supporting evidence of manufacturing location
• Third-party verification reports for complex supply chains
• Records of component sourcing that demonstrate country-of-origin for all inputs

Singapore and Hong Kong Transshipment: Goods shipped through Singapore or Hong Kong that are not processed in those locations can still claim Chinese origin—but the documentation must clearly demonstrate that the goods were in transit and not subject to any processing. The ATO is specifically targeting arrangements where goods are given documentary treatment in intermediate ports that obscures their Chinese origin.

Changes to Tariff Concession Claims

Several tariff concession categories are frequently used for imports from China, and the ATO has updated its requirements for each.

Tariff Concession System (TCS): The TCS allows businesses to claim concessions on imported goods used in manufacturing processes. The 2026 updates include stricter eligibility criteria for Chinese-origin goods, particularly for products where domestic Australian production competes with imports. The ATO will now require more detailed information about the end use of goods and the relationship between the imported product and any competing Australian goods.

Export Market Development Grant (EMDG) Linkage: Businesses that claim both TCS concessions and EMDG grants are under increased ATO scrutiny. The agency has identified arrangements where the combined benefit exceeds what the policy intent would support. If your business uses both programs, ensure your documentation can withstand scrutiny.

Pharmaceutical and Medical Device Imports: The ATO has updated guidance for tariff concession claims on pharmaceutical ingredients and medical device components sourced from China. These categories have specific documentation requirements that the ATO has strengthened in response to audit findings showing high rates of non-compliance.

Machinery and Equipment Imports: Capital equipment imported from China for use in Australian manufacturing may be subject to concessional tariff rates, but the ATO now requires detailed specifications, installation documentation, and evidence of end use to support claims. Equipment that is eventually exported may not qualify for concessions intended for goods used in Australian production.

New Record-Keeping Requirements

The ATO has introduced enhanced record-keeping requirements that apply to all imports from China, regardless of value or product category.

Record Retention Period: Records related to imports from China must now be retained for a minimum of seven years—not five as previously. This includes invoices, shipping documents, customs entry documentation, correspondence with suppliers, and any pricing analysis that supported import valuation decisions.

Electronic Record Standards: Records must be maintained in a format that can be produced to the ATO within fourteen days of a request. This means businesses need to ensure their document management systems can retrieve relevant records quickly and in an organized format.

Supplier Correspondence: The ATO specifically requires that businesses maintain records of communications with suppliers that relate to pricing, payment terms, and any adjustments to commercial terms. Email correspondence, WeChat discussions, and other communications must be preserved.

Translation Requirements: Documents in Chinese must be accompanied by English translations if the ATO requests them. The 2026 guidance clarifies that machine translations are acceptable but must be reviewed for accuracy and accompanied by a declaration from a competent translator.

Transfer Pricing Documentation for Chinese Imports

For businesses with related-party arrangements, transfer pricing documentation requirements have become more specific in 2026.

Import-Specific Documentation: The ATO now expects businesses to maintain documentation that specifically addresses the import function, not just the overall related-party arrangement. This means demonstrating:

• The pricing methodology used for imports
• The comparables used to support arm's length pricing
• The functional analysis of the Australian entity's role in the import transaction
• Any adjustments made to benchmark prices to reflect differences between tested transactions and comparable uncontrolled transactions

Master File and Local File: Australian entities with Chinese parent companies that exceed the relevant thresholds must maintain Master File and Local File documentation under Australia's transfer pricing rules. The 2026 updates clarify that import transactions must be specifically addressed in the Local File, with separate functional analysis for the import function.

Benchmarking Updates: The ATO expects businesses to update their transfer pricing benchmarking analysis at least annually and immediately when there are material changes in the business environment. A benchmarking study conducted three years ago and not updated will not satisfy current requirements.

Practical Steps for Compliance

Given the 2026 changes, Australian businesses importing from China should take the following steps now.

Review your import valuation: If you have related-party arrangements with Chinese suppliers, ensure your import pricing documentation is current, complete, and能够证明arm's length pricing.

Audit your country-of-origin documentation: Verify that your records can demonstrate Chinese origin for goods where you claim preferential treatment. For transshipment goods, ensure documentation shows the goods were not processed in intermediate ports.

Update your record-keeping systems: Confirm that you can retrieve five years of import documentation within fourteen days and that your Chinese-language documents have adequate English translations.

Review your tariff concession claims: Verify that you meet the current eligibility criteria for any concessions you claim, particularly TCS claims for manufacturing inputs.

Engage your customs broker: Ensure your customs broker is aware of the 2026 changes and has updated their processes accordingly. A good customs broker is your first line of defense against compliance problems.

Consider a voluntary disclosure: If you have identified compliance issues with previous import arrangements, consider voluntary disclosure to the ATO before being audited. The voluntary disclosure program provides penalty relief and reduced interest charges for businesses that come forward proactively.

Consequences of Non-Compliance

The ATO has substantial powers to address non-compliance, and the 2026 changes give the agency additional tools.

Additional Customs Duty: Undervaluation results in reduced duties paid. The ATO can assess additional customs duty equal to the difference between the duty that should have been paid and the duty actually paid, plus interest.

Penalties: The ATO applies penalties based on the degree of culpability. Careless misstatements attract penalties of twenty-five percent of the shortfall; reckless or intentional disregarding of the rules can attract penalties of seventy-five percent.

Lock-Up Provisions: For serious or systemic non-compliance, the ATO can require prepayment of customs duty for future imports—effectively requiring the business to demonstrate compliance before releasing goods from customs.

Director Penalty Notices: Directors of companies that fail to comply with ATO requirements may receive personal liability notices for unpaid amounts.

Frequently Asked Questions

What is the key change for related-party import transactions?

The ATO has clarified that transfer pricing rules explicitly apply to import pricing from related Chinese entities. Businesses must now maintain specific documentation demonstrating that import prices reflect arm's length terms, and audit activity in this area has increased significantly.

Do the new rules apply to all imports from China, or only large ones?

The record-keeping requirements and country-of-origin documentation rules apply to all imports, regardless of value. The enhanced transfer pricing scrutiny primarily affects businesses with related-party arrangements that exceed certain thresholds, but any business can be audited.

What happens if I am audited and cannot produce adequate documentation?

The ATO can make assessments based on the information available to it, which typically results in higher duty assessments than if the business had proper documentation. The burden of proof for establishing correct valuation and origin rests with the importer.

Can I use a customs broker to manage compliance?

A competent customs broker can help you navigate the compliance requirements, but the ultimate responsibility for accurate import declarations and record-keeping rests with the importer business. Ensure your customs broker is properly informed about the 2026 changes and is maintaining adequate records on your behalf.

How can I verify my Chinese supplier's compliance with Australian standards?

The ATO does not certify Chinese suppliers. You must conduct your own due diligence on supplier documentation, manufacturing processes, and product specifications. Third-party inspection services can help verify compliance with specification and quality requirements.

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The ATO's 2026 compliance changes are not designed to trap innocent businesses—they are designed to ensure that the rules established to protect the Australian tax base are actually followed. For businesses with genuine commercial relationships with Chinese suppliers and properly documented import arrangements, the new requirements should not create significant additional burden.

However, businesses that have relied on informal arrangements, inadequate documentation, or optimistic interpretations of the rules will need to update their practices. The ATO's enhanced enforcement focus means the probability of audit has increased, and the consequences of non-compliance are more significant than ever.

Understanding the rules, maintaining proper documentation, and engaging professional support when needed are the foundations of compliance in the current environment.

Winning Adventure Global provides customs compliance and trade policy advisory services for Australian businesses importing from China. Our team helps businesses navigate ATO requirements, maintain proper documentation, and manage customs risk.