5. Decision Impact Statement for the Roche case
In the Tax Office’s Decision Impact Statement (DIS) for Roche Products Pty Limited v. Commissioner of Taxation, the Commissioner indicated in respect of view of Downes, J President on the Treaty power that the Tax Office 'is not bound by the observations made by His Honour on this point and will continue to adhere to the position outlined in Tax Ruling 92/11 (TR), TR 94/14 and TR 2001/13 that the business profits or associated enterprises article of a double tax agreement (DTA) may provide a separate basis for assessing transfer pricing adjustments, independently of Division 13'.
Would the Tax Office please provide an explanation of the basis on which it considers that it is not bound by the views of His Honour, noting in particular that that the Tax Office has not appealed against the Tribunal’s decision nor has indicated that it was considering having the law on this point tested in another case?
Response
For the substituted tax years ending 31 December 1992 to 31 December 2002, Roche Products Pty Ltd (the taxpayer) claimed deductions for the purchase of trading stock from related companies in the Roche group located in Switzerland and Singapore.
The Commissioner issued amended assessments increasing the taxpayer’s taxable incomes in the relevant years by a total of approximately $126 million by:
- increasing the amount of profit of the taxpayer in accordance with the associated enterprises articles of the Swiss and Singapore Double Tax Agreements, and
- making determinations under Division 13 of the Income Tax Assessment Act 1936 (ITAA 1936) disallowing the deductions claimed by the taxpayer for that portion of the purchases that were considered to exceed the arm’s length consideration.
The Commissioner considers that both bases of amendment are supported by the terms of subsection 170(9B) of the ITAA 1936, as the associated enterprises articles are ‘relevant provisions’, and sections 136AD and 136AE are ‘prescribed provisions’, for the purposes of that subsection (see the relevant definitions in subsection 170(14)).
In his final decision of 22 July 2008 ([2208] AATA 639), Downes J dealt with the case primarily on the basis that he was applying the provisions of section 136AD. His Honour noted, in paragraph 190, that: ‘both parties accepted that the result in this case would not be affected if the treaties conferred no power to assess’.
His Honour then commented, in paragraph 191, that ‘In the result I do not need to decide the issue although I note that there is a lot to be said for the proposition that the treaties, even as enacted as part of the law of Australia, do not go past authorising legislation and do not confer power on the Commissioner to assess. They allocate taxing power between the treaty parties rather than conferring any power to assess on the assessing body.’
The Commissioner considers that it is quite clear from the face of paragraph 191 of his decision, that Downes J did not consider his comments in that paragraph were part of his decision in the case, for the purposes of subsection 43(1) of the Administrative Appeals Tribunal Act 1975. That is why the Decision Impact Statement Roche Products Pty Ltd v. Commissioner of Taxation case noted that the Commissioner is not bound by the observations made by His Honour in paragraph 191.
The Commissioner would also note that, although Downes J considered the operation of subsection 170(9B) in paragraphs 197 to 207 of his decision, this was only done in the context of that provision applying ‘for the purpose of giving effect to a prescribed provision’, that is, section 136AD. His Honour did not consider, and was not required to consider, whether subsection 170(9B) applied ‘for the purpose of giving effect to a relevant provision’, that is, the associated enterprises articles.
Division 13 and subsections 170(9B) and (9C) were introduced into the ITAA 1936 in 1982 by the Income Tax Assessment Amendment Act 1982. The Explanatory Memorandum to the relevant Bill makes it quite clear that subsection 170(9B) was being enacted to allow for the amendment of assessments supported by either determinations made under the then new Division 13 or the operation of the associated enterprises articles.
Meeting discussion
There was general discussion of the issue during which the CTC (CTC) advised that the issue is still under consideration. He added that the Tax Office had sought legal advice as part of its consideration of the issue.
Sections within Agenda items
Last Modified: Friday, 3 July 2009
Subscribe
