Glencore fallout likely to provoke more tax battles

Fresh legal tests of the Australian Tax Office’s transfer pricing regime are anticipated as a result of the fallout from one Australia’s most significant court decisions on tax rules.

In a decision impact statement relating to a major case involving Anglo-Swiss mining giant Glencore issued last week, the Tax Office said it did not accept that the result set a new standard for “depersonalisation” or that the rules had been narrowed.

Glencore had a victory in the Federal Court in November last year in a long-running battle over internal pricing systems for copper concentrate.

At the heart of the case was a $92 million tax bill and the ATO’s decision to issue Glencore with three sets of amended tax assessments related to the “arm’s length” test.

The court considered whether agreements between two of the firm’s own entities should be given the same consideration as a deal between two independent parties.

Jones Day tax partner Niv Tadmore said a large number of transfer pricing disputes were under way, and the decision impact statement provided insight into the ATO’s view of transfer pricing issues.

“Even if one does not agree with the ATO’s takeaway messages from Glencore, the statement is highly important going forward in terms of better understanding where the ATO is coming from and resolving transfer pricing disputes outside the courts,” Dr Tadmore said.

“Glencore was not about the new transfer pricing regime, however a key aspect of the statement is that the ATO clearly leaves the door open to argue that Glencore cannot be neatly applied to the new regime.

“The ATO may continue to apply its pre-Glencore positions to disputes involving the new regime, and secondly, we are likely to see the new regime tested in future cases.”

Transfer pricing rules govern transactions within multinational groups, targeting firms seeking to shift profits and stopping taxpayers increasing expenses or reducing income through dealings with a related entity in lower-tax jurisdictions.

In November 2019, the ATO was forced to ask the Federal Court for special permission to appeal a decision on the contested bill after it missed a critical filing deadline by six minutes.

An appeal was considered imminent, but lawyers acting for Commissioner of Taxation Chris Jordan had to seek the necessary extension of time.