Australia: Tax round-up – Q4 2019

The Australian Taxation Office (ATO) has appealed the decision in Glencore Investment Pty Limited v Commissioner of Taxation (2019) FCA 1432 regarding transfer pricing and related issues.

While the Federal Court decision by Davies J deals with the price at which the Glencore Australian subsidiary sold copper concentrate to its Swiss trader parent, it provides highly useful broader guidance in determining the arm's-length consideration or arm's-length profits. This can be considered across a broad range of international transactions and industry sectors, particularly those which are the subject of special ATO attention including intra-group debt, intellectual property rights and distribution/marketing arrangements.

The case also deals with issues concerning form versus substance. Furthermore, it deals with the use of financial, accounting and industry specific experts as well as the relevance/importance of supporting evidence such as comparable agreement/arrangements – and in this case, similar price sharing agreements.

The Federal Court (Logan J) has held in Addy v Commissioner of Taxation (2019) FCA 1768 that the UK-Australia double tax treaty applied to override certain Australian domestic tax law commonly known as the backpacker tax. The court held that this tax, which subjects non-citizens holding a working holiday visa to a higher rate of tax than an Australian national, was a "disguised form of discrimination based on nationality". This treatment was contrary to Article 25(1) of the treaty. It is noted that other non-discrimination clauses ordinarily extend as well to dealings between controlled entities and permanent establishments.

Recent legislation has extended the list of exchange of information jurisdictions to include Curaçao, Lebanon, Nauru, Pakistan, Panama, Peru, Qatar and the United Arab Emirates. These eight countries will be added effective from January 1 2020 and will allow, among other things, qualifying entities resident in those countries to access the concessional 15% managed investment trust withholding tax concession.

Australia, through its Board of Taxation, continues to review and analyse alternative approaches to corporate residency and related issues.

DLA Piper
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