Highlights

  • The ATO has identified AI businesses, cloud computing and data-hosting activities as areas of increasing compliance attention in 2026.
  • Related-party royalties, offshore financing and cross-border profit allocation are among the issues receiving closer scrutiny.
  • The regulator is examining whether Australian tax outcomes reflect the scale of local infrastructure, customers and economic activity.
  • Software royalty guidance issued in September 2026 adds further detail to the ATO's approach to digital and intellectual-property arrangements.
  • Large groups face a combination of tax transparency, transfer-pricing documentation and cross-border compliance requirements.

The Australian Taxation Office is the federal agency responsible for administering Australia's taxation and superannuation systems. In 2026, its compliance focus has increasingly extended to digital business models, including artificial intelligence, cloud computing and data-centre operations, reflecting the growth of technology-led activity and cross-border service structures.

Digital Business Models Move Higher on the Compliance Agenda

The ATO has signalled that data centres and AI-related businesses are receiving closer attention because they often combine substantial Australian infrastructure and customers with global ownership, offshore intellectual property and cross-border service arrangements. The central compliance question is whether the profit reported in Australia is consistent with the economic activity carried out locally.

Cloud hosting and data-centre models can involve large capital expenditure, depreciation deductions, financing costs and payments to related entities. These features do not imply non-compliance, but they create complex tax outcomes that require clear support and documentation. The same applies to AI services that may be developed offshore, licensed into Australia and supplied to local customers through digital platforms.

Royalties and Offshore Financing Remain Key Pressure Points

Related-party royalties are one area of particular interest. Payments for software, intellectual property or technology rights can reduce Australian taxable profit, so the ATO is examining whether those payments reflect the underlying value provided and whether their tax treatment is appropriate. The regulator is also reviewing offshore financing and other related-party arrangements that may shift income or deductions between jurisdictions.

In September 2026, the ATO finalised software royalty ruling TR 2026/2. A companion draft practical compliance guideline, PCG 2026/D4, was also released to outline risk zones for certain software arrangements. Together, these measures provide additional context for businesses using overseas technology, licensing or intellectual-property structures.

Transparency and Documentation Become More Important

The ATO's 2026 position indicates that large digital and technology groups should expect greater emphasis on transfer pricing, the commercial substance of related-party payments and the alignment between local operations and taxable income. Public country-by-country reporting and the broader international tax framework also increase the amount of information available for regulatory review.

For businesses operating data centres or AI platforms, the practical focus is likely to remain on documentation that explains where functions are performed, where assets and intellectual property are located, how intra-group charges are calculated and why the resulting profit allocation is commercially supportable.

Key Insights

The ATO's 2026 compliance agenda shows how digital business models are moving into the mainstream of large-business tax administration. AI, cloud computing and data centres can involve complex cross-border structures, but the regulator's focus remains on whether Australian tax outcomes reflect the underlying economic activity. The direction of policy suggests that documentation, transfer-pricing discipline and the treatment of royalties and financing will remain important areas of attention for technology groups operating in Australia.