24 May 2021

A transfer pricing win for the taxpayer: High Court dismisses ATO’s special leave application

This article was written by Jerome Tse, Natalie Tatasciore, Travis Toemoe, Georgia Cowley and David Blight.

It is often said that the price of copper is a barometer of global economic conditions. After the High Court dismissed an application for special leave by the ATO concerning transfer pricing, it might now be said copper is also a transfer pricing barometer.

More importantly, the refusal of leave by the Court (Kiefel CJ and Gordon J) last Friday (21 May 2021):

  • makes the Full Federal Court’s decision in Commissioner of Taxation v Glencore Investments Pty Ltd (2020) 384 ALR 252 the leading domestic authority on Australia’s complex transfer pricing provisions; and
  • provides some certainty to taxpayers around what is required to satisfy the arm’s length test – in short, the key determinant is whether the consideration is within an arm’s length range which independent parties might reasonably be expected to enter, not necessarily whether the entities in question would have actually entered the agreement had they been independent of each other.

The dispute involved Division 13 of the Income Tax Assessment Act 1936 (Cth) and Subdivision 815-A of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) – transfer pricing provisions which have since been superseded by Subdivision 815-B of the ITAA 1997 – and amended assessments for the 2007, 2008 and 2009 calendar years.  

Had special leave been granted, this case would have marked the first time the High Court considered Australia’s complex transfer pricing provisions, so it may come as a shock to some that leave was not granted.  The fact it was not together with the lead judgment in the Full Court having been written by Steward J (since elevated to the High Court) will likely see the Full Federal Court’s decision in Cobar be considered the leading transfer pricing authority in Australia.

It is possible the Commissioner may say that because the statutory provisions in question have been superseded by Subdivision 815-B, the Full Court’s decision is of limited use.  Our view is such an approach is too narrow. The Full Court’s decision ought remain important to the new statutory provisions particularly on what the taxpayer is required to prove to satisfy its burden of establishing a transaction was on arm’s length terms.

KWM’s tax and litigation teams acted for the successful taxpayer throughout the matter.


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