Glencore's Tax Planning in Australia

Glencore, one of the largest mining and natural resource trading companies in the world, ranked 10th in the Fortune Global 500 list in 2015. The company has been the focal point of several high-profile cases, including one we discussed in another article, Glencore – Zambia Copper Mines. However, this time, we shift our attention from Zambia to Australia.

This article examines a tax dispute in Australia involving transfer pricing (TP): Glencore Investment Pty Limited v. Commissioner of Taxation of the Commonwealth of Australia [2020]. The case was decided on November 6, 2020, by the Full Federal Court (akin to an appellate court), where Glencore achieved a resounding 3-0 victory against the Australian Taxation Office (ATO). While the score sounds like a football match, it actually refers to all three judges ruling in favor of Glencore. The ATO, dissatisfied with the outcome, appealed to the High Court, but their appeal was dismissed on May 21, 2021.

The core of the dispute revolved around whether the price at which Glencore's Swiss parent company, Glencore International AG (referred to as the Swiss Parent), purchased copper concentrate from its Australian subsidiary, Cobar Management Pty Limited (referred to as the Australian Subsidiary), between 2007 and 2009 complied with Australia's transfer pricing laws. The ATO argued that the purchase price was significantly below market value and demanded additional taxes, citing provisions under Section 13 of the 1936 Income Tax Act and Division 815-A of the 1997 Income Tax Act (collectively referred to as the TP Regulations).

Both the Swiss Parent and the Australian Subsidiary are controlled entities within the Glencore Group. Since Australia's tax rates are significantly higher than Switzerland's, without TP regulations, the Australian Subsidiary could sell copper concentrate to the Swiss Parent at below-market prices, allowing the group to shift profits to Switzerland and reduce overall tax liability. With TP regulations in place, the Australian Subsidiary must ensure that the sale price of copper concentrate adheres to the arm's length principle—that is, the price must reflect market value to prevent artificial profit shifting.

However, instead of using straightforward market prices, Glencore adopted a highly complex pricing mechanism, which led the ATO to suspect tax avoidance. Let’s delve into the details of this tax dispute.