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Are Retrospective TP Measures Unconstitutional?
The Australian Government is hungry for revenue and seemingly willing to introduce retrospective tax legislation to protect its tax base. But is it just a matter of time before a taxpayer mounts a successful constitutional challenge to taxes imposed retrospectively? Taxand Australia explores why taxpayers are becoming increasingly disgruntled.
To be valid under the Constitution, a tax law must be imposed by reference to ascertainable criteria of sufficiently general application and capable of being known in advance by taxpayers, to enable them to assess these criteria and legitimately order their affairs accordingly. Retrospective tax laws that treat taxpayers differently depending upon the way in which they legitimately ordered their affairs in the past may be viewed as arbitrary exactions.
It seems self-evident that taxpayers have not been afforded the opportunity to order their affairs in accordance with the new transfer pricing (TP) rules from their 1 July 2004 start date. Also, the TP measures have the potential to apply differently to different taxpayers, depending on the way in which each taxpayer legitimately ordered its affairs in the past.
The Explanatory Memorandum to the Bill, which introduced the TP measures, sows the seeds of a defence to their retrospective application based on the claim that they merely clarify Parliament's previously expressed intention. A taxpayer seeking to question the constitutional validity of the TP measures could lead evidence that, contrary to the view in the EM, the measures do change the manner in which the law operates.
At the very least, the apparent willingness of this Government to introduce tax laws with retrospective effect creates fertile ground for a constitutional challenge. It seems just a matter of time before an aggrieved taxpayer with an appropriate case successfully challenges a retrospective tax law on constitutional grounds.