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27 May 2021 Cases

Transfer pricing win for the taxpayer: High Court dismisses ATO’s special leave application to appeal against Commissioner of Taxation v Glencore Investment Pty Ltd

Authored by Jerome Tse and Natalie Tatasciore, Partners, and David Blight, Solicitor, King & Wood Mallesons. King & Wood Mallesons represented the successful taxpayer throughout the matter.

On Friday 21 May 2021, Kiefel CJ and Gordon J of the High Court of Australia dismissed the Commissioner of Taxation’s (Commissioner) special leave application to appeal against Commissioner of Taxation v Glencore Investment Pty Ltd (2020) 384 ALR 252 (Cobar), marking a win for the taxpayer and cementing the Full Federal Court’s Cobar decision as one of the leading domestic authorities on Australia’s complex transfer pricing provisions.

The matter focused on an offtake agreement for the sale of copper concentrate from Australian miner Cobar Management Pty Ltd (CMPL) to related party Glencore International AG (GIAG) in Switzerland. The Commissioner took issue with the agreement’s 23% price sharing formula and the quotational period optionality provided for in the agreement (together, the pricing mechanism), arguing that a hypothetical independent seller with the characteristics of CMPL would not have agreed to these terms and that the pricing mechanism therefore did not constitute arm’s length consideration. The Commissioner also took issue with the agreed freight credits albeit that this issue was insignificant in the overall matter.  

The Commissioner relied on 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815-A of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) – transfer pricing provisions which have since been superseded by Subdivision 815-B of the ITAA 1997 – to issue amended assessments for the 2007, 2008 and 2009 calendar years. 

First instance – Federal Court of Australia

The taxpayer successfully appealed against the Commissioner’s objection decisions in the Federal Court of Australia (Glencore Investment Pty Ltd v Commissioner of Taxation (2019) 272 FCR 30), relying on expert evidence and a series of comparable agreements between independent parties to argue that hypothetical unrelated counterparties in the position of CMPL and GIAG might reasonably be expected to agree to the pricing mechanism and the freight credits provided for in the contract. 

Justice Davies found that, while the independent agreements tendered into evidence were not precisely comparable with the impugned agreement, they contained sufficiently comparable terms or data points to establish that the related party pricing mechanism fell within an arm’s length range. 

Continue reading the full case summary, which covers the appeal judgment and special leave application, here on The Tax Institute’s blog.



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