Why Australia’s High Court dismissed ATO’s request in Glencore case

Commodity company Glencore will not face an appeal at the High Court of Australia since the court ruled against hearing an appeal. The court found that the ATO had not raised issues sufficient to warrant a special leave in this case.

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

In doing rejecting a request for special leave, the High Court has upheld the September 2019 Federal Court decision that found the ATO misapplied key provisions of transfer pricing (TP) rules.

The Federal Court of Australia ruled the ATO had misapplied TP standards in its reassessment of the taxpayer’s transactions. The ATO contested this decision, but the Full Federal Court upheld the judgment in November 2020.

The tax office had lost that appeal on all but one point. Yet the ATO filed a ‘request for leave to appeal’ on December 10 2020 to the High Court of Australia against the Full Federal Court decision.

The Federal Court decision

The Full Federal Court of Australia ruled in favour of Glencore in the case after the ATO waged its appeal. The mining company won the case on all but one of the issues under dispute.

Not only did the Court favour Glencore, the court made a comment about how to conduct TP cases, which points to a more pragmatic approach in favour of the taxpayer.

“The Court must take care not to make the task of compliance with Australia’s transfer pricing laws an impossible burden when a revenue authority may, years after the controlled transaction was struck, find someone, somewhere, to disagree with a taxpayer’s attempt to pay or receive arm’s length consideration,” said the judgment.

Glencore is the first company to face a court battle over the Paradise Papers leaks, but the mining company's case also deserves attention for its implications for the application of the arm’s-length principle. The impact of the Glencore case might see the ATO moderate its approach to the TP system and how it deals with multinational groups with similar TP practices.

The case goes back to Glencore transactions made from 2007 to 2009. The ATO challenged Glencore on its international structure, in which Cobar Management (CMPL) sold 100% of the copper concentrate produced in New South Wales to its Swiss parent company Glencore International AG (GIAG).

Although the price itself was based on the rate set by the London Metal Exchange, the ATO claimed that this price-sharing arrangement was not in line with the arm's-length principle. CMPL would not have entered into such an arrangement had it been between independent parties, the tax office argued.

In the September 3 2019 ruling, Judge Jennifer Davies set aside three tax assessments for income years 2007, 2008 and 2009. She also dismissed the ATO’s reasons for the assessments and ordered the tax authority to pay costs to Glencore.

This ruling was a setback for the tax authority after winning landmark tax cases such as Chevron. It has also been getting tougher on transfer pricingmatters in recent years and the Chevron case has emboldened the ATO to challenge more multinationals.

The Chevron case may have emboldened the ATO to file an appeal at the Full Federal Court in 2020. However, the latest decision from the High Court on May 21 2021 may mean this case will finally come to an end, and the ATO may need to revise its strategy in addressing similar disputes.