AUSTRALIA Trends and Developments Contributed by: Michael Clough, Jerome Tse, Judith Taylor and Kai-Chen Lamb, King & Wood Mallesons
of which would replicate an agreement with an independent third-party lender. Indeed, the Commissioner of Taxation often notes that the price of the debt is affected by the quantum of the debt, the choice of currency and security. These difficulties posed by the Commission - er sometimes seem to beg the question. For example, the assumption in the hypothetical of a parental guarantee results in the debt being priced by reference to the risk being assumed by the parent and its shareholders. In many cases, this would distort the underlying ration - ale for the determination of what is an appro - priate economic return on the debt capital. Put another way, that assumption merely transfers the inquiry to what price should be paid for the guarantee. That transfer was acknowledged in an earlier Full Court decision. In any event, it is the taxpayer who must pro - duce reliable evidence to prove on the balance of probabilities that not only is the Commission - er’s position wrong, but also that the taxpayer’s position is correct. It is quite common for the Commissioner to submit that the taxpayer has not discharged this onus of proof and thus that the assessment of tax should stand. Dept push-down The second case involved a debt push-down by a non-resident company to its new Austral - ian subsidiary, which became indirectly wholly owned by the non-resident as a consequence of a take-over of a global group by the non- resident. The Commissioner originally applied the domestic transfer pricing rules to adjust the level of debt as part of the counterfactual. In Court, the Commissioner did not proceed with the transfer pricing adjustment but relied on the domestic GAAR to challenge the quan -
tum of debt and thus the quantum of the interest deduction. The decision is significant because it seems to demonstrate a preference by the Commissioner to pursue counterfactuals where possible under the domestic GAAR rather than transfer pricing rules. This preference presum - ably reflects a view that the Commissioner does not have to lead as much evidence in a GAAR matter, where the taxpayer must lead evidence about the commerciality and purpose of the rel - evant steps. The GAAR is also not constrained by a double tax agreement. Courts find it difficult to deal with the incorpora - tion of the OECD Guidelines on Transfer Pricing into the domestic transfer pricing legislation. Some judges refer to the guidelines as “only guidelines” developed by a committee repre - senting countries with different systems of taxa - tion and jurisprudence. Those judges prefer to give more weight to the usually (but not always) crisper language used in drafting legislation. Other judges rely heavily on the guidelines and the examples in the guidelines to determine how a transfer pricing dispute is best resolved. In any event, and as discussed above, transfer pric - ing cases are difficult to decide because of the need to adopt a hypothetical counterfactual in a world of imperfect comparables and because highly credentialed experts often express con - trary opinions. Trends in Administration The following points examine – in brief – some of the trends that taxpayers in Australia are experi - encing in practice. • Compliance with Australia’s transfer pric - ing rules remains a top priority of the ATO. Although Second Commissioners have stated that the gap between expected revenue from multinationals and actual revenue
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