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Australia: Taxpayer’s comparables prevail in transfer pricing case
Australia: Taxpayer’s comparables prevail
The Federal Court of Australia on 3 September 2019 issued a taxpayer-favorable decision in a marketing hub dispute.
The case is: Glencore Investment Pty Ltd. v. Commissioner of Taxation of the Commonwealth of Australia [2019] FCA 1432. Read text of the decision
The Federal Court held that the taxpayer had satisfied its burden of proof in relation to the transfer prices it used on certain cross-border related-party transactions between its copper mining operations and its Swiss-based trading entity.
Further, the Federal Court found that the Commissioner had misapplied the transfer pricing rules in Division 13 and Subdivision 815-A (this finding has significant implications for the Commissioner’s administration of these provisions).
Key points from the decision include:
- The taxpayer’s approach of starting with the actual transaction was appropriate. The provisions of the agreement between the taxpayer and its Swiss-based trading entity were observable in contracts between independent enterprises, and there was nothing to suggest that the pricing outcomes of the taxpayer’s dealings were inconsistent with outcomes obtained by arm’s length dealings with independent third parties.
- The decision provides clarity with respect to use of a hypothetical transaction in considering whether the pricing outcomes are consistent with an independent arm’s length outcome, and the circumstances when it may be appropriate to adjust the form of the actual transaction entered into by the parties. The hypothetical relied on by the Commissioner must be founded upon the actual transaction under consideration. The hypothetical cannot be of a fundamentally different character.
- In proving that Commissioner’s assessments were excessive, compelling evidence of comparable transactions is key to a taxpayer’s ability to successfully defend the transfer pricing positions adopted.
The Australian Taxation Office released a statement concerning the court decision, including “whether an appeal is appropriate.”
Read an October 2019 report prepared by the KPMG member firm in Australia
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