Tax Treaty Case Law around the Globe 2023

1. Introduction

The recent case of Singapore Telecom Australia Investments Pty Ltd v. Federal Commissioner of Taxation (SingTel) raises a central question in the interpretation of Article 9 of the OECD Model Convention and its counterparts in double tax agreements and analogous domestic legislation. The case considers the interest rate charged on a loan arrangement between two members of a large multinational enterprise. The dispute between the taxpayer and the Australian Taxation Office largely concerned one crucial question: When determining the arm’s length price for a transaction between two related parties, should both parties be treated as if they were independent orphan companies with no ties to controllers or a corporate group, or should their group membership be recognized when the arm’s length price for a substituted hypothetical transaction with a third party is calculated?

This question is particularly important in the context of intra-group loan agreements. If each party were considered as an independent orphan entity when applying Article 9, it could be expected that the lender would require a much higher interest rate given the larger risk associated with a wholly inde...