October Tax Alert


Glencore case – A transfer pricing win for taxpayer

Tax Alert - October 2019

By Bart de Gouw and Eleanor Yew

The Federal Court of Australia ruled in favour of Glencore Investment Pty Ltd (GIPL) in relation to dealings with its offshore related party, Swiss based Glencore International AG, on the sale and purchase of copper concentrate in the 2007 to 2009 years (Glencore Investment Pty Ltd v Commissioner of Taxation [2019] FCA 1432).

The fundamental transfer pricing lesson learnt from this case is that related party transactions should be conducted in the following manner:

  • substance should match form;
  • contracts and supporting documents should be in place between related parties; and
  • contracts made between related parties should be commercially viable, that is, the contracting terms would be those that independent parties would be willing to enter into.

With the above in place, the tax authorities should respect the actual arrangements (other than in exceptional circumstances) and not be able to reconstruct the arrangements. The judge stated that “the actual characteristics of the taxpayer must, therefore, ordinarily serve as the basis in the comparable agreement” and hence the authority should identify the actual arrangement and test it based on the arm’s length principle.

Method selection from the Glencore case

The application of the comparable uncontrolled priced (CUP) method, where available, is a strong and persuasive method of justifying the terms, conditions and pricing under which independent parties would be willing to contract i.e., the arm’s length terms and conditions. When transfer pricing principles are adhered to, we can avoid double taxation and minimise compliance and administrative cost.  

We note for completeness that Organisation for Economic Co-operation and Development (OECD) Transfer Guidelines have been amended in 2017 which arguably give even greater emphasis on identifying the real arrangement between the related parties and pricing that arrangement.

In cases where a potential CUP exists that approach should be explored as a basis of testing the arm’s length nature.

If you have any questions about your transfer pricing arrangements, contact your usual Deloitte tax advisor.

Did you find this useful?