Australia’s High Court lets Glencore’s transfer pricing win stand

In a significant win for the taxpayer, the High Court of Australia on May 21 refused to hear an appeal of the lower court’s decision in a transfer pricing dispute between Glencore and Australia’s tax authority. As a result, the Federal Court’s decision in Glencore will stand.

The Federal Court of Australia had ruled in favor of Glencore in a September 2019 decision that found that the Commissioner had misapplied transfer pricing provisions in its attempt to reconstruct the taxpayer’s controlled transactions and contractual terms. That decision was upheld on review by the Full Federal Court in a November 2020 decision.

In declining the Commissioner’s appeal, Chief Justice Kiefel stated, “The Commissioner seeks to overturn findings of fact upheld by the Full Court below. In our view no question of principle sufficient to warrant a grant of special leave arises.”

Paul McNab, a Partner with DLA Piper Australia in Sydney, explained that the Glencore decision is important for several reasons. For one, as a win for the taxpayer, it highlights that transfer pricing positions adopted by the Australian Taxation Office can be successfully challenged in court and should be scrutinized, he said.

McNab said that although the Commissioner argued that changes made to the taxpayer’s intercompany pricing agreements aimed to reduce Australian profits and would not have been made by parties operating at arm’s length, the court agreed with the taxpayer that the changes satisfied the transfer pricing provision’s requirements.

The case underlines the importance of the rules relating to burden and onus of proof, he said. “It is not enough in Australian transfer pricing disputes to rely on traditional transfer pricing analysis reports alone,” McNab stated. “The nature and quality of the surrounding commercial evidence is critical . . .   The judgements deal extensively with the evidence and give great insights into how the court will approach expert and lay evidence and what will be seen as important,” he said.

He warned, though, that the decision deal with past years. The impact of these changes and Australia’s general anti-avoidance rule will now need to be overlaid on the facts as well, he said.