Tax Treaty Case Law around the Globe 2018

S. 123Chapter 12 Australia: Setting Interest Rates in Transfer Pricing Disputes

Graeme Cooper

12.1. Introduction

The decision by Chevron Australia Holdings Pty Ltd to appeal against the judgment of the Federal Court in its transfer pricing dispute with the Australian Taxation Office presented the Australian courts with a second opportunity to examine the arm’s length standard, in this case, the interest rate on an upstream loan.

The case involved the interpretation and operation of Australia’s domestic transfer pricing rules and the operation of article 9 of the Australia-United States Income Tax Treaty (1982) (hereinafter Australia-US treaty). For both sets of rules, the relevant question was the same: did the interest rate paid by Chevron Australia Holdings Pty Ltd to the related party offshore exceed the arm’s length price? The Full Federal Court rejected the appeal, upholding the judgment at first instance – the interest paid by the Australian company was excessive. Nevertheless, even though the result was the same, the reasoning and analysis adopted by the appeal court to determine the arm’s length price differed in several key respects from the approach adopted at first instance.

Before...