In recent years, the Australian Taxation Office (ATO) has identified transfer pricing as a major focus of its compliance and review processes. In a speech delivered on 14 August 2019, Second Commissioner of Taxation Jeremy Hirschhorn reaffirmed that “transfer pricing (and avoiding transfer mis-pricing) is a key focus of the ATO given its criticality to the Australian taxation system.


Since the ATO’s win in the landmark 2017 Chevron case (Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCAFC 62), the ATO has asserted that it has a broad power to reconstruct and re-price related party transactions under Australia’s transfer pricing rules.


In that case, the Full Federal Court rejected the taxpayer’s argument that the ATO was limited to working out an arm’s length interest rate on a Chevron intra-group loan by reference to the actual terms of the related party loan entered into by the parties, but could price it by adding terms as to security and repayment that arm’s length parties would be expected to adopt. The case remains the leading authority on Australian transfer pricing law, but its application to other cases is not straightforward given the specific facts of the case.


On 3 September 2019, in the first major transfer pricing decision since the Chevron case, Glencore Investments Pty Ltd v Commissioner of Taxation [2019] FCA 1432 (Justice Davies), the Federal Court indicated the Commissioner’s reconstruction power is much more limited than he may have thought.


Discover more: Court limits Australian Taxation Office’s power to reconstruct related party transactions in transfer pricing disputes

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