Australia: Independent parties would not have agreed to changes to financing arrangement (court decision)
Financing arrangement between two related companies over a 10-year period, subject to multiple amendments
Independent parties would not have agreed to changes to financing arrangement
The Federal Court today issued a judgment that rejects the taxpayer’s appeal and agrees with the Commissioner that independent parties would not have agreed to the multiple amendments made to a financing arrangement between the related companies in this case. The multiple amendments were not consistent with the arm’s length principle, concluded the court.
The case is: Singapore Telecom Australia Investments Pty Ltd. v. Commissioner of Taxation,  FCA 1597 (17 December 2021). Read the decision
The case involved a financing arrangement between two related companies over a 10-year period and that was subject to multiple amendments. The case turned on a series of amendments made to the arrangement.
The Commissioner succeeded in arguing that independent parties would not have agreed to the changes.
In a complex and lengthy transfer pricing decision, the Federal Court predominantly considered Subdivision 815-A of the Income Tax Assessment Act 1997 and held that the conditions imposed between the related entities were not at arm’s length, that interest on the loan would have been lower, and that a parental guarantee would have been provided.
The court decision suggests that the problem with the taxpayer’s position was that it departed too far from the actual transaction and the characteristics of the parties to that transaction, and that the taxpayer did not demonstrate that the amended assessments were excessive.
The parties have until 22 December 2021 to provide proposed minutes of orders to give effect to the Federal Court’s reasons for judgment.
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