Australia: Independent parties would not have agreed to changes to financing arrangement (court decision)
Financing arrangement between two related companies over a 10-year period, subject to multiple amendments
Independent parties would not have agreed to changes to financing arrangement
The Federal Court today issued a judgment that rejects the taxpayer’s appeal and agrees with the Commissioner that independent parties would not have agreed to the multiple amendments made to a financing arrangement between the related companies in this case. The multiple amendments were not consistent with the arm’s length principle, concluded the court.
The case is: Singapore Telecom Australia Investments Pty Ltd. v. Commissioner of Taxation,  FCA 1597 (17 December 2021). Read the decision
The case involved a financing arrangement between two related companies over a 10-year period and that was subject to multiple amendments. The case turned on a series of amendments made to the arrangement.
The Commissioner succeeded in arguing that independent parties would not have agreed to the changes.
In a complex and lengthy transfer pricing decision, the Federal Court predominantly considered Subdivision 815-A of the Income Tax Assessment Act 1997 and held that the conditions imposed between the related entities were not at arm’s length, that interest on the loan would have been lower, and that a parental guarantee would have been provided.
The court decision suggests that the problem with the taxpayer’s position was that it departed too far from the actual transaction and the characteristics of the parties to that transaction, and that the taxpayer did not demonstrate that the amended assessments were excessive.
The parties have until 22 December 2021 to provide proposed minutes of orders to give effect to the Federal Court’s reasons for judgment.
For more information, contact a KPMG tax professional in Australia:
Angelina Lagana | +61 3 8663 8650 | email@example.com
Keith Swan | +61 2 9455 9261 | firstname.lastname@example.org
Jeremy Capes | +61 2 9335 7665 | email@example.com
Sean Madden | +61 3 8663 8056 | firstname.lastname@example.org
Joseph Tranzillo | +61 2 9273 5272 | email@example.com
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.