The Anglo-Swiss commodities group Glencore has won a round in its war with the Taxation Office, with a judge throwing out a $92m bill relating to one of its Australian mines.
On Tuesday the federal court judge Jennifer Davies set aside three years of tax bills levied against Glencore over its claims for the cost of processing copper from its CSA mine near Cobar.
The case predates and is unrelated to Glencore’s failed attempt to stop the ATO using leaked information contained in the Paradise Papers to investigate offshore finance structures, including $25bn in currency swaps.
But Glencore’s victory is a blow for the ATO in its attacks on complex transactions that take place between different members of the same corporate group, especially in the resources sector.
The ATO has stepped up its scrutiny of the industry, bolstered by a win against Chevron in a 2017 case that set new benchmarks for how “transfer prices” between the different parts of the same multinational group should be calculated.
In the CSA case, the tax office objected to a change Glencore made in 2007 to the way the mine calculated the cost of processing done by another company in the Glencore group.
The calculated cost – which was 23% of a copper reference price listed on the London Metals Exchange – was deducted from the amount Glencore paid the mine. But the ATO disagreed, hitting Glencore with fresh tax bills for the years between 2007 and 2009.
The ATO told the court Glencore should have stuck with the previous method of calculating the processing price, which was based on an industry benchmark.
It also said the deal had not been done at arm’s length and had favoured the Glencore company that bought the copper, located in tax haven Switzerland, over the Australian one that operated the mine.
But Davies said the arrangement made more sense when considering the volatile market for copper at the time. “It cannot be said that the entry into a price-sharing contract was irrational, having regard to the benefits of such contracts and the market circumstances,” she said.
She ordered the ATO to pay Glencore’s costs.
A company spokesman welcomed the court decision.
The ATO said it was considering whether to appeal.
The deputy commissioner said ensuring the Australian arms of big firms dealt with their offshore sister companies at arm’s length was “the most significant issue in multinational taxation”.
“Transfer pricing rules ensure these transactions are priced fairly and that multinational companies do not underpay tax in Australia,” he said.
