Australia: Managing cross-border intercompany financing arrangements (court case)

A decision of the Federal Court addresses cross-border intercompany financing arrangements.

Managing cross-border intercompany financing arrangements

A decision of the Federal Court highlights certain evidentiary considerations that taxpayers must take into account in order to discharge their burden of proof in transfer pricing cases, and it could potentially affect all taxpayers with international related-party dealings (not just loans)—both retrospectively and prospectively.

The case is: Singapore Telecom Australia Investments Pty Ltd v. Commissioner of Taxation [2021] FCA 1597

  • The decision was handed down by the Federal Court on 17 December 2021, finding in favor of the Commissioner of Taxation, and is a further development of Australia’s transfer pricing laws.
  • The dispute primarily concerned the application of Subdivision 815-A of the Income Tax Assessment Act 1997 (Subdivision 815-A) to cross-border related-party borrowings.
  • The application of the former Division 13 of Part III of the Income Tax Assessment Act 1936 (Division 13) was only briefly considered. While these provisions have since been replaced by Subdivision 815-B of the Income Tax Assessment Act 1997 (Subdivision 815-B) for income years beginning on or after 29 June 2013, there are a number of large audits and disputes in process, for which the Commissioner may seek to apply the earlier provisions.
  • Additionally, some of the concepts embedded in Subdivision 815-A and possibly also Division 13 could potentially inform how Subdivision 815-B might be interpreted by the courts.

KPMG observation

The case is only the second Australian transfer pricing case to address issues directly raised by cross-border intercompany financing following the Full Federal Court’s April 2017 decision in Chevron Australia Holdings Pty Ltd v. Commissioner of Taxation [2017] FCAFC 62 (which also found in favor of the Commissioner).

Read more in a February 2022 report [PDF 369 KB] prepared by the KPMG member firm in Australia

 

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