Snapshot
- The first application by a court of Australia’s enhanced general anti-avoidance rule, the diverted profits tax, has led to more questions than answers and a High Court appeal is likely.
- The judgment, as it stands, grapples with nascent tax law issues but also broader issues in complex commercial contract analysis.
- This article analyses the implications of the divided judgment and forecasts the remaining legal questions the High Court may resolve.
The Australian Taxation Office (‘ATO’) is currently seeking special leave to appeal to the High Court on the first decision to test the scope and operation of Australia’s enhanced general anti-avoidance rule, the diverted profits tax. Current betting suggests the High Court will grant special leave because the four Federal Court judges are divided and the case involves recent, important and untested law.
The case is important as another skirmish in the ATO’s long running and high profile project to control what it sees as abuses in the treatment of payments for the use of intangibles. It also raises more general issues of contract analysis: when is something that looks like a right more properly construed as constituting an obligation, and how does a court characterise and weigh the multitude of rights and obligations arising in complex commercial contracts? Not surprisingly, the dispute is being keenly followed by local marketing and distribution entities for foreign multinationals, and by the multinationals which use related and unrelated Australian businesses to sell their products here.
