ATO’s decision impact statement on the Glencore transfer pricing case

27 October 2021

In brief

On 28 September 2021 the Australian Taxation Office (ATO) released its decision impact statement in relation to the transfer pricing decision in Commissioner of Taxation v Glencore Investments Pty Ltd (the Glencore case), affirming that the decision outcome was ‘mostly unfavourable to the Commissioner’. The decision impact statement follows the High Court’s refusal in May 2021 for the Commissioner to apply for special leave to appeal the decision of the Full Federal Court of Australia (Commissioner of Taxation v Glencore Investment Pty Ltd [2020] FCAFC 187).  Refer to our previous Tax Alert for further information on the Glencore case.

The ATO’s decision impact statement sets out the Commissioner’s views regarding a number of important transfer pricing issues, including the appropriate degree of depersonalisation, evidence, reconstruction and contrasts between Subdivision 815-A of the Income Tax Assessment Act 1997 (ITAA 1997) (which was relevant for the Glencore case) and Subdivision 815-B of the ITAA 1997 (which is more commonly encountered in practice today and, while similar to Subdivision 815-A, contains some textual differences).

In detail

Issues decided by the Courts

The decision impact statement highlights the following issues as decided by the Courts:

  • Restructuring - The Full Federal Court did not follow the primary judge’s (Davies J) conclusion that the Commissioner was 'impermissibly restructuring the contract' and instead held that, under both the predecessor Division 13 of the Income Tax Assessment Act 1936 (ITAA 1936) and Subdivision 815-A of the ITAA 1997, the Commissioner could substitute terms that resulted in a different formula or a different methodology to be utilised in order to ascertain the arm's length consideration. The Court’s comments on this issue focused on the pricing mechanism in the particular circumstances and did not endorse a broader substitution of terms to the agreement. 
  • Pricing - The Full Federal Court held that Glencore Investment Pty Ltd (GIPL) had discharged its onus of proof by establishing that the actual pricing terms that applied between Cobar Management Pty Ltd (CMPL) and Glencore International AG (GIAG) in the 2007 to 2009 years (other than in respect of the freight terms in 2009, which were decided in the Commissioner’s favour), were ones that might reasonably have been expected between independent parties, with some of the same relevant objective characteristics as CMPL and GIAG, dealing at arm's length.

    The Courts accepted the taxpayer's expert evidence that the relevant disputed terms were commercially prudent for the parties to adopt, existed in the relevant industry between independent parties with some of the same relevant objective characteristics as CMPL and GIAG and ultimately were a matter of commercial judgment having regard to the particular risk appetite of a particular mine (although there was apparently no evidence led about CMPL's particular risk appetite ).
  • High Court’s reasons for not granting special leave - The Commissioner applied for special leave to appeal from the High Court on the basis that the Full Federal Court misconstrued the 'arm's length principle' applicable under Division 13 of the ITAA 1936 and Subdivision 815-A of the ITAA 1997, and that the taxpayer did not discharge its onus of proof because it failed to lead evidence of the dealing that was likely to have been entered into between CMPL and GIAG if they had dealt with each other at arm's length. The Commissioner’s application was refused on the basis that the Commissioner was seeking to overturn findings of fact upheld by the Full Federal Court and that there was no question of principle sufficient to warrant a grant of special leave.
ATO’s view of the decision

Appropriate degree of depersonalisation

The Full Federal Court set out at paragraphs 177-186 of the judgment seven propositions to be addressed in appropriately depersonalising the hypothetical independent parties that need to be established to enable the transfer pricing exercise to be undertaken. One of the arguments the Commissioner proposed centered on the postulated need to consider the risk appetites of the relevant parties and/or the Glencore group in ‘personalising’ the relevant hypothetical independent parties to the arrangement. No such evidence regarding the risk appetites of the parties or the Glencore group was presented before the courts and was ultimately found not to be necessary. Rather, perspectives around risk appetites were considered a matter of commercial judgment and were established by reference to evidence from industry experts as to what might reasonably be expected from independent parties acting at arm’s length. This specific point was also addressed throughout the seven propositions established by the Full Federal Court.

The Full Federal Court also noted that choices which are open to be made about risk may affect the determination of the arm’s length consideration and it follows that there is likely to be more than one price which is an arm’s length price. In that respect, the Court noted that a taxpayer is under no obligation to choose a pricing methodology which pursues profitability in Australia at the expense of prudence. 

The Commissioner does not accept that the Glencore case narrows the extent by which a comparable hypothesis is to be personalised, nor that it sets a standard for ‘depersonalisation’. Rather the ATO cite passages in the earlier Chevron case (which dealt with the application of Australia’s transfer pricing rules to a related party loan) and take the view that there is neither inconsistency in the application of the arm's length principle nor the tests to be applied in respect of Division 13 of the ITAA 1936 and Subdivision 815-A of the ITAA 1997 between Chevron and Glencore. The ATO’s view is that the outcomes in the two cases were reached after a consideration of all the evidence before the Courts in each case.  

Insight: The seven propositions for depersonalisation will need to be carefully considered by taxpayers in undertaking the required transfer pricing analysis. This includes considering which factors are a feature of commercial judgment (and therefore to be answered from the perspective of ‘what might reasonably be expected from independent parties acting at arm’s length’), and which factors reflect objective attributes in which to clothe (or ‘personalise’) the hypothetical parties in attempting to answer that question from their perspective. 

As discussed below, evidence around the risk appetites of the parties or relevant group policies was not presented to the Court and this appears to be a key theme in the decision impact statement, with an implicit view from the Commissioner that had such evidence been before the courts, it may have impacted outcomes. However, transfer pricing is a hypothetical exercise based on an objective test. It is therefore unremarkable that the Full Court found that it is necessary to exclude from that hypothesis any considerations that are a product of non-arm’s length relationship with the related party and the broader group.


The decision impact statement reinforces the Commissioner’s views around the need to undertake a careful examination of the totality of evidence available to best establish the arm's length conditions that might reasonably have been expected to operate in any given case. The following example of the types of evidence to be examined are provided by the Commissioner:

  • evidence about all of the relevant objective circumstances of the actual parties in the actual market at the relevant time
  • relevant group policies
  • how the taxpayer and its group might have contemporaneously dealt with third parties for the same or similar transaction
  • the prevailing contemporaneous practices in the relevant industry, and
  • what other independent entities in the same or similar contemporaneous circumstances as the taxpayer and the counterparty might reasonably have been expected to have done.

The Commissioner outlines that where a taxpayer relies solely on the opinion of an expert as to what independent parties in the industry might reasonably have been expected to have done, that may not be considered to be sufficient by the Commissioner to discharge their onus of proof depending on the totality of evidence available. In attempting to address the aforementioned theme regarding ‘depersonalisation’ and evidence (not) presented before the Courts, the Commissioner outlines that although expert evidence was ultimately accepted by the Full Federal Court, evidence about the Glencore group's policies or its risk appetite might also have been relevant had it been before the Court.

The decision impact statement also looks to address the implications for leading evidence regarding comparability and benchmarking analyses. In this regard, the Commissioner notes that if a taxpayer seeks to rely on agreements that exist in the industry between independent parties that are not truly comparable but may establish general 'reference points', it will not be accepted that such agreements alone are sufficient to establish arm's length conditions. The Commissioner reinforces that the totality of evidence available, including any 'truly comparable' agreements, will need to be considered in establishing relevant arm's length conditions.

Insight: Evidence will always be the crucial aspect to any transfer pricing dispute and it is not surprising to see the Commissioner reiterate the importance of examining the totality of evidence available in establishing arm’s length conditions. Taxpayers should ensure they have identified, compiled and examined the available evidence in connection with their transfer pricing arrangements, particularly in relation to assertions on which the transfer pricing position is likely to turn. 

With respect to the Commissioner’s views in relation to reliance on expert opinions, taxpayers will need to ensure this is considered in the context of the totality of evidence available and evaluated by reference to the Glencore decision, including the seven propositions regarding ‘depersonalisation’ established by the Court.

With respect to the Commissioner’s comments regarding comparability analysis, taxpayers should ensure that appropriate transfer pricing comparability analysis is undertaken, in accordance with Australia’s transfer pricing rules. However, where information is available regarding supplementary reference points or other arrangements providing probative value for the transfer pricing analysis, then this should also be considered to help corroborate the taxpayer’s position. In practice, the Commissioner often focuses on the pursuit of that ‘truly comparable’ agreement.  If the reference points demonstrate a clear pattern of pricing, it would be disingenuous to exclude specific agreements in an effort to find that ‘truly comparable’ agreement instead of accepting that the agreements produce a relevant arm’s length range (as repeatedly expressed by the Courts in other transfer pricing decisions such as SNF and Chevron).  


The Commissioner agrees with the Full Federal Court's conclusion that he was not impermissibly restructuring or reconstructing the relevant arrangement in this case (‘restructuring’ appears to be used synonymously with ‘reconstruction’ by the Commissioner in the decision impact statement).

The Commissioner also cited Thawley J’s observations in the Full Federal Court, in agreeing that there is no justification in the statutory language to limit the terms and conditions that can be substituted under the relevant provisions to only those that 'define the price'.

Insight: The Full Federal Court overturned a conclusion of the Federal Court and instead found that Glencore was a ‘repricing’ case, not a ‘reconstruction’ case.  Given that disputes centred on reconstruction require a higher bar to be met in terms of onus of proof, this conclusion may be seen as a silver lining for the Commissioner as it confirms that the ‘reconstruction’ hurdle is somewhat further than originally drawn by Davies J at first instance. 

The Commissioner’s views regarding the transfer pricing provisions not being limited to terms and conditions that ‘define the price’ are unsurprising and consistent with what is observed in practice. This is inconsistent with the conclusion of the majority in the Full Federal Court, which confirmed that there is no power or authority to substitute different terms of a contract where those terms are not seen as defining the consideration received. The same conclusion was said to apply to Subdivision 815-A but the scope of that limitation was left as “a question for another day”. Given these findings and the Commissioner’s views, taxpayers should prudently ensure they consider the totality of the commercial and financial relations being analysed from a transfer pricing perspective, including having regard to the commercial rationale underpinning the arrangements and the alternative options realistically available to the parties.

Subdivision 815-B

The Commissioner notes that there are textual differences between the statutory tests in Subdivisions 815-A and 815-B of the ITAA 1997, which may bear upon how relevant the decisions in the Glencore case and in the Chevron case are to how Subdivision 815-B is ultimately applied by a court. In particular, the Commissioner cites that: 

  • Section 815-125 of Subdivision 815-B defines 'arm's length conditions' with specific reference to independent parties dealing wholly independently with one another in 'comparable circumstances' and a non-exhaustive list of relevant factors to which regard must be had in identifying those comparable circumstances is provided, and
  • Section 815-130 of Subdivision 815-B sets out a 'basic rule' and 'exceptions' framework for how the arm's length conditions are to be identified and in what circumstances the identification of the arm's length conditions is to be based on the 'actual commercial or financial relations'.

Insight: Taxpayers should be mindful of the differences between Subdivisions 815-A and 815-B of the ITAA 1997 in considering the relevance of the Chevron and Glencore decisions for transfer pricing matters involving the application of Subdivision 815-B. In particular, the scope of reconstruction is more prescriptive and limited under Subdivision 815-B. The ‘basic rule’ is that the identification of the arm’s length conditions must “be based on the commercial or financial relations in connection with which the actual conditions operate” and “have regard to both the form and substance of those relations.” Departure from this basic rule can only occur in limited prescribed circumstances.  

Implications for impacted advice or guidance and comments

The ATO is of the view that the Glencore decision has no implication on any related advice or guidance.

The ATO has invited any submissions in relation to its decision impact statement (particularly in relation to any consequences of the decision that the ATO has not identified) by 29 October 2021. 

The takeaway

Taxpayers are free to draw their own conclusions and interpretations from the Glencore case, however the decision impact statement provides valuable insight into the Commissioner's views. Taxpayers will need to take note of the Commissioner’s views (including around depersonalisation, evidence, comparables and reconstruction) and prepare accordingly, as it those views they will encounter at first instance in ATO engagement processes, including risk reviews, audits and advance pricing arrangements.  

Contact us

Michael Bona

Global Tax Leader, PwC Australia

Tel: +61 405 136 010

Nick Houseman

Australian Transfer Pricing Leader, PwC Australia

Tel: +61 2 8266 4647

Clementine Thompson

Partner, Global Tax, PwC Australia

Tel: +61 413 089 431

Edin Mahir

Partner, Global Tax, PwC Australia

Tel: +61 415 931 934

Hamish McElwee

Partner, Tax, PwC Australia

Tel: +61 (8) 9238 3571

Caleb Khoo

Partner, Legal, PwC Australia

Tel: +61 2 8266 6526