Australia: Robust comparables, practical considerations on managing the pricing of cross-border arrangements

Australia: Pricing of cross-border arrangements

The Full Federal Court issued its decision in a generally taxpayer-favorable case. The Commissioner’s appeal was allowed with regard to only one item relating to a freight allowance.


The case is: Commissioner of Taxation v. Glencore Investment Pty Ltd. [2020] FCAFC 187 (6 November 2020)

In the technically complex and lengthy judgment (114 pages), the Full Federal Court considered a number of matters including the statutory questions posed under Division 13 of Part III of the Income Tax Assessment Act 1936 (Div 13) and Subdivision 815-A of the Income Tax Assessment Act 1997 (Subdiv 815-A).

KPMG observation

Key practical lessons can be gleaned from the case to assist taxpayers in managing the pricing of cross-border arrangements:

  • When taxpayers have good reference points to demonstrate that cross-border arrangements are set on a commercial basis (e.g., based on what independent entities actually do), this is very relevant to analysing arm’s length outcomes.
  • Third-party comparable arrangements do not need to be perfect comparables, but need to provide a good indication of what might be close to the market, or what is not out of the market.
  • Identifying an arms’ length outcome does not require taxpayers necessarily to choose the outcome that maximizes profits. Other considerations such as risk appetite and commercial or market factors that exist at a relevant time may also play an important role.

Taxpayers in a dispute with the Commissioner regarding the application of the transfer pricing rules need to consider conducting several key tasks in preparing the necessary evidentiary support required to successfully defend positions taken and to withstand scrutiny.

Read a November 2020 report [PDF 252 KB] prepared by the KPMG member firm in Australia 

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