A decision impact statement on the Full Court’s first transfer pricing decision in the case of Commissioner of Taxation v SNF Australia Pty Ltd [2011] FCAFC 74 was released by the Commissioner on 7 November 2011.
The Commissioner accepts the concept of an arm’s length range and the use of adjustments when applying the comparable uncontrolled price method. However, according to the Commissioner, a number of issues remain to be tested:
- whether, and to what degree, the circumstances of a taxpayer are relevant, particularly to pricing unsecured loans that may have variable margins depending on the risk profile of the borrower;
- the use of profit methods where it is not possible or practicable to ascertain the arm’s length consideration by any other methods;
- a situation where, because of its nature, a particular transaction would not have taken place at all between unrelated parties;
- whether a global market exists for a different product or service;
- the use of Australia’s double tax treaties as a separate assessment power; and
- the relevance of the OECD Transfer Pricing Guidelines, particularly where their application by state parties to a treaty can be demonstrated by the Commissioner.
The last two points may never need to be tested if legislative effect is given to the announcement by Assistant Treasurer Bill Shorten last week of significant proposed changes to transfer pricing laws, including retrospective changes that will take effect from 1 July 2004.
Interestingly, and in line with the Commissioner’s signalled approach to future Part IVA cases, the decision impact statement also foreshadows alternative assessments in transfer pricing cases. This would allow the Commissioner to simultaneously test several possible applications of the transfer pricing rules to the one case, making successful challenges by a taxpayer more difficult and costly.
