01
Full Federal Court, 2020
The limits of rewriting a transaction
Glencore. The taxpayer beat the adjustments on the evidence, and lost the point it is usually cited for: the Full Court held the tax office can substitute a different pricing formula.
Corporate & Commercial
Contracts, structures and governance for businesses that need the paperwork to hold when something goes wrong.
Mergers & Acquisitions
Buying or selling a business, from the term sheet and due diligence through to completion and the restraints that follow.
Litigation & Dispute Resolution
Commercial disputes in the NSW, ACT and Federal courts, resolved early where that is possible and run properly where it is not.
Technology and Software
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Articles
Where the law changed, what it now requires, and what a business has to do about it.
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One question worked through end to end, with the provisions and the decisions it rests on.
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What a judgment decided, and what follows from it for anyone in the same position.
Germany
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Singapore law where it governs the contract, and the arbitral seat that carries much of the region’s work.
Transfer Pricing
Transfer pricing turns on what your two companies agreed, and on what they actually did.
For German groups with an Australian subsidiary. This page sets out the Australian legal layer: the structure, the intercompany agreements, how the company is funded, what the payments back are, the documentation deadline and who signs. It is the written version of our part of the German Australian Chamber webinar of 17 September 2026, and every case named on it has a note behind it.
Destination Australien: Transfer Pricing Explained
Presented with Accru Felsers for the German-Australian Chamber of Industry and Commerce, September 2026.
The objective
What a group is actually trying to achieve
01
One profit, two countries
One profit is made between the German parent and the Australian company. The prices and terms on their dealings decide how much of it Australia taxes.
02
Taxed once, not twice
If Australia moves profit here and Germany does not reduce its own tax to match, the same profit is taxed in both countries. An Australian adjustment does not by itself produce a German one.
03
Settled now, not argued later
The division is decided when the dealings are set up and priced. Everything after that is evidence about a decision somebody has already made.
Close
One profit, two countries
The Transfer Pricing Guidelines define transfer prices as the prices at which an enterprise transfers physical goods and intangible property or provides services to associated enterprises. That definition is not a textbook gloss: s 815-135(2)(a) of the Income Tax Assessment Act 1997 requires the arm’s length identification to be interpreted as consistently as possible with those Guidelines as last amended on 20 January 2022, so the 2022 edition is the one Australian law points at. It is in the Preface, not in the glossary, which has no entry for the term at all.
Related expertise
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Taxed once, not twice
Article 9(2) of the Germany treaty obliges the other State to make an appropriate adjustment where an adjustment has been made in the first, and art 9(3) puts a ten year limit on adjustments, subject to fraud, wilful default, gross negligence and an audit already begun. Where the two revenue authorities do not agree, art 25 is the route, and it runs on a clock of its own.
Close
Settled now, not argued later
This is why the subject reaches a lawyer at all. By the time a position is being defended, the facts are fixed: the agreements say what they say, the conduct was what it was, and the records either existed at the right moment or did not. Almost every lever is at the front.
Before anything else
Six words, and what each one means in Australian tax law
Each of these carries a precise meaning here, and two of them do not mean what they sound like. Everything further down the page is built on them.
01
The terms two unrelated businesses would have agreed for the same dealing. Terms, and not only price: security, covenants, guarantees, the length of the arrangement and what happens if it goes wrong are all part of the comparison. In the Australian cases that have been decided, the argument is far more often about those terms than about a number.
02
The prices and terms on which companies inside the same group deal with each other, and the rules that decide how much of the resulting profit each country may tax. It applies to sales of goods, services, licences, loans and guarantees between the German parent and its Australian company.
03
It is the tax office taxing the dealing as something other than what was signed, or as a dealing that would never have happened at all. It is not a repricing of the arrangement the group made but a substitution for it, and it is the point at which having the paperwork stops being enough.
04
The written contract between the German parent and the Australian company covering what one supplies to the other and on what terms. Supply, distribution, services, licensing, loans and guarantees are the usual subjects, and a group often has several.
05
A taxable presence in Australia without an Australian company having been set up. The group has not incorporated anything and has not decided to be taxable here, and Australia taxes the profit attributable to the presence anyway.
06
The records supporting the transfer pricing position that have to exist before the Australian return is lodged, rather than when the tax office asks for them. What goes in them is a tax adviser’s question. That they must exist by a particular date, and what follows if they do not, is law.
01 / 06
What does arm’s length actually mean?
The terms two unrelated businesses would have agreed for the same dealing. Terms, and not only price: security, covenants, guarantees, the length of the arrangement and what happens if it goes wrong are all part of the comparison. In the Australian cases that have been decided, the argument is far more often about those terms than about a number.
This is the first thing a finance team tends to have half right. A price picked from a benchmarking study does not answer the question if the surrounding terms are ones no independent party would have accepted.
It is also why the subject is not purely arithmetical. What an unrelated lender would have required, or an unrelated licensee would have insisted on, is a question about commercial behaviour.
Related expertise
02 / 06
What is transfer pricing, in one sentence?
The prices and terms on which companies inside the same group deal with each other, and the rules that decide how much of the resulting profit each country may tax. It applies to sales of goods, services, licences, loans and guarantees between the German parent and its Australian company.
The group is charging itself. Because the two sides are not bargaining against each other, the tax law of each country asks what the dealing would have looked like if they had been.
Related expertise
03 / 06
What is reconstruction, and why does it matter?
It is the tax office taxing the dealing as something other than what was signed, or as a dealing that would never have happened at all. It is not a repricing of the arrangement the group made but a substitution for it, and it is the point at which having the paperwork stops being enough.
Most people arrive expecting an argument about a number. Reconstruction is the argument about whether the transaction the documents describe is the one that gets taxed, and it is the most heavily litigated question in the field.
Related expertise
04 / 06
What is an intercompany agreement?
The written contract between the German parent and the Australian company covering what one supplies to the other and on what terms. Supply, distribution, services, licensing, loans and guarantees are the usual subjects, and a group often has several.
It is the document that has to describe what actually happens, which is a lower bar than it sounds and the one most groups fail.
Related expertise
05 / 06
What is a permanent establishment?
A taxable presence in Australia without an Australian company having been set up. The group has not incorporated anything and has not decided to be taxable here, and Australia taxes the profit attributable to the presence anyway.
It is the one item on this list that is a consequence rather than a choice, which is why it sits in the vocabulary rather than further down.
Related expertise
06 / 06
What counts as documentation?
The records supporting the transfer pricing position that have to exist before the Australian return is lodged, rather than when the tax office asks for them. What goes in them is a tax adviser’s question. That they must exist by a particular date, and what follows if they do not, is law.
The deadline is the part that surprises people, and it is the reason this appears on a page written by lawyers.
Structure
A subsidiary is chosen. A permanent establishment can arise by accident
01
The subsidiary, which is a decision
A separate Australian company. The transfer pricing question is whether its dealings with the parent are on the terms strangers would have agreed. That is a question about documents and conduct, and it is answerable in advance.
02
The permanent establishment, which is a consequence
No separate company, and Australia taxes the profit anyway. Different rules, different evidence, and usually no paperwork at all, because nobody knew it existed. The three triggers below are things an operating business does for ordinary commercial reasons.
03
Nine months on a building or installation project
Under the Germany treaty a building site, or a construction or installation project, creates a permanent establishment after nine months, including supervisory and consultancy work connected with it. German advisers carry twelve months, because twelve is the OECD default. Connected activities split between two group companies are added together, so dividing a project between them does not help.
04
183 days of substantial equipment
Operating substantial equipment in Australia for more than 183 days in a twelve month period. This one catches groups that think of themselves as suppliers rather than as operators here.
05
A person here who habitually closes the deal
Someone in Australia who habitually plays the principal role leading to contracts that head office then concludes without material modification. The question is what the person does, not what the contract of employment or the signing protocol says.
The one thing to take away
An agreement that does not match what you do is worse than no agreement
01
It can be disregarded
Where the form of the arrangement is inconsistent with its substance, the substance governs and the document does not save the position.
02
It can be rewritten
The arrangement can be identified on the basis of different commercial or financial relations from the ones the parties actually entered into.
03
It can be treated as never having happened
Where independent parties would have entered into no dealing at all, the arrangement can be identified on that basis.
Close
It can be disregarded
Section 815-130 of the Income Tax Assessment Act 1997 is the provision. Subsection (2) requires the arm’s length conditions to be identified on the substance rather than on a form that is inconsistent with it. So a wrong agreement is not a neutral document: it is a document read against the group.
Close
It can be rewritten
Section 815-130(3). When that power is engaged is the most litigated question in the field, and the answer has moved against the taxpayer rather than toward one.
Glencore is the case usually cited for the limits on it. The taxpayer did defeat the adjustments, but on the facts and on expert evidence about its industry, and the Full Court held on appeal that the Commissioner does have the capacity to substitute a different pricing formula. The conditions on which the trial judge had refused to do so do not appear in the current provision. Read the note before taking the case as a shield.
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It can be treated as never having happened
Section 815-130(4). It is the least used of the three and the one that surprises people most, because it means the answer to a badly evidenced intercompany dealing is not always a different price.
Funding, and what goes back
How you fund the company, and what you call the payments, both change the tax
01
Equity or a loan, decided at the outset
How the Australian company is capitalised is a structural choice, and it is expensive to unwind afterwards. It is also the choice that gets tested on two separate grounds, the terms of the debt and the purpose of the arrangement, which are different questions with different tests.
02
Interest, capped at ten per cent
The Germany treaty caps Australian withholding tax on interest at ten per cent. Article 11(4) can bring interest to that ceiling even where an exemption would otherwise apply, if it is paid under a back to back arrangement.
03
Royalties, capped at five per cent
The treaty definition of a royalty is wider than a licence agreement. It reaches the supply of scientific, technical, industrial or commercial knowledge or information, and assistance ancillary to it. That is how a management fee acquires a withholding obligation nobody budgeted for.
04
Dividends, at five or fifteen per cent
Five per cent where the parent has held ten per cent of the shares for six months, and fifteen per cent otherwise.
05
Where transfer pricing reaches the withholding itself
The rules do not stop at the deduction. A transfer pricing benefit includes the case where withholding tax on interest or royalties would have been greater had the dealings been at arm’s length, so getting the rate wrong is not only a deduction question.
Characterisation
The management fee that is partly a royalty
01
One fee, two treatments
A single monthly fee to the parent can cover support, staff time and back office, on which no Australian withholding tax arises, and the use of the brand and the group’s technical knowledge, on which it does.
02
The treaty definition is wider than a licence
Article 12(3) reaches the supply of scientific, technical, industrial or commercial knowledge or information, and assistance that is ancillary to it. Know-how transferred informally can fall inside it.
03
The leading case turned on a fact you may not have
The High Court decided in 2025 that a payment can be a royalty however it is described, but that where an undisputed arm’s length price is paid for goods, no part of it is consideration for the intellectual property that came with them.
Close
One fee, two treatments
The split is not a formality. Where a single fee covers both, the question is what part of it is consideration for the right to use the intellectual property, and the answer does not depend on what the invoice calls it.
Close
The treaty definition is wider than a licence
This is the practical trap for a German group. The arrangement that produces it is usually not a licence anybody negotiated. It is a head office that supports its Australian subsidiary as a matter of course, invoices a round monthly figure for doing so, and has never asked what the figure is for.
Related expertise
Close
The leading case turned on a fact you may not have
The company escaped on facts worth reading before taking comfort from the result. It was paying an unrelated Australian bottler, at a price the Commissioner never argued was inflated, for goods. A German parent invoicing its own subsidiary a monthly fee has none of those three things.
The reason to know the case is therefore the opposite of the reason it is usually cited. It settles that the label on the payment does not govern, and it shows how narrow the ground was on which the taxpayer stood. The case note sets out what was argued at each of the three levels and where the Court divided.
Documentation
Documentation is a statutory deadline, not a filing habit
01
The records must exist before the return is lodged
Not when the tax office asks. Records prepared after lodgment do not count for this purpose, however good they are, and however defensible the position actually was.
02
Without them the position is deemed not reasonably arguable
The consequence is not an evidentiary disadvantage. Where the entity does not hold records meeting the requirements, its transfer pricing position is treated as not reasonably arguable, and the penalty follows from that rather than from any view about the merits.
03
Twenty five per cent, or ten where the treatment is reasonably arguable
Of the extra tax. Records meeting the requirements are necessary for the lower rate and do not earn it on their own: without them the treatment is deemed not reasonably arguable, and with them it still has to be reasonably arguable on its merits. For a significant global entity, a group with annual global income of one billion dollars or more, the penalty doubles where the treatment is not reasonably arguable, so it is the twenty five that becomes fifty. A number of German groups with Australian subsidiaries sit above that line without thinking of themselves as large.
04
The date to work backwards from is lodgment day
It falls every year. Most finance teams know when the Australian return is lodged and do not know who holds the transfer pricing records on that date. Those two facts belong to the same person.
Governance
Who signs, and in whose interests
01
The resident director is not a formality
An Australian proprietary company must have at least one director who ordinarily resides in Australia. The appointment is usually made for convenience. The duties arrive regardless.
02
The duty runs to the company, not to the group
The Australian director signs terms fixed by someone else, for someone else’s benefit, and must still act in good faith in the best interests of the Australian company.
03
The protection depends on the constitution
A director of a wholly owned subsidiary may act in the parent’s interests, but only where the constitution expressly authorises it. Off the shelf constitutions rarely do.
Close
The resident director is not a formality
Section 201A(1) of the Corporations Act 2001 (Cth). Every director, wherever they live, must also hold an Australian director identification number before appointment, and for a person outside Australia that takes time to arrange. For an offshore parent it is often the first practical obstacle.
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Close
The duty runs to the company, not to the group
Section 181. This is the point at which transfer pricing stops being a tax subject. A director asked to sign an intercompany agreement on terms head office has set has a personal question to answer about it, and the answer is not supplied by the group’s policy.
Close
The protection depends on the constitution
Section 187, which has three limbs and fails on the first in most groups, because the constitution carries no express authorisation. It is a document nobody has looked at since incorporation and it either says this or it does not.
How a position gets tested
Two routes, and only one of them involves the tax office
01
Seven years, and the burden sits with the company
The Commissioner has seven years to amend a transfer pricing assessment. A company challenging one must prove not only that the assessment is wrong but what the correct figure is.
02
The other route needs no tax office at all
A sale, an incoming investor or a restructure puts the intercompany arrangements in front of somebody whose job is to find what is wrong with them, on a timetable the group does not control.
03
And it can be litigated as a contract claim
In an Australian case decided in 2025, an intercompany liability that the vendor group’s own auditors had identified, and that was not disclosed, was fought after completion as a claim under the share sale agreement rather than as a tax dispute.
Close
Seven years, and the burden sits with the company
Section 14ZZO of the Taxation Administration Act 1953 puts the burden on the taxpayer, on an appeal against an objection decision, to prove that the assessment is excessive or otherwise incorrect and what it should have been. That is what ties this back to the documentation deadline: the records are how the second half of that is discharged, and they had to exist years earlier.
Close
The other route needs no tax office at all
What the buyer’s advisers are reading is the same material an auditor would read, and the consequence is commercial rather than fiscal: a discount, an indemnity, a retention, or a claim after completion. It arrives years before any revenue authority would have got there.
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And it can be litigated as a contract claim
The buyer’s claims failed, and one of them failed for a reason worth more than the transfer pricing point: the payment obligation it relied on was expressed to arise only once a completion statement had been finalised under a dispute resolution clause, and that clause had not been carried through. A well founded claim can be defeated by the machinery of the contract it is brought under.
Where the advice is created
What privilege reaches here, and what it does not
01
It protects legal advice, not the analysis around it
Privilege attaches to confidential communications made for the dominant purpose of giving or obtaining legal advice. Tax, accounting and valuation content prepared by people who are not lawyers is not privileged, and it does not become privileged because a lawyer was copied in or sent it out under their own name.
02
The engagement decides what is available, not what is protected
How the work is set up determines whether the protection is open to the group at all. Whether any particular document actually has it is decided one document at a time, on what that document is about.
03
And none of it touches the records you must hold
The transfer pricing documentation has to exist before lodgment and has to be produced. Privilege is not a route around a statutory obligation to keep records, and it changes nothing about what is lodged or disclosed.
Close
It protects legal advice, not the analysis around it
This is the part groups most often have wrong. Routing a document through a lawyer, or filing it with one, does not clothe it. What is looked at is the subject matter of the communication and the purpose for which it was made.
Related expertise
Close
The engagement decides what is available, not what is protected
In the leading Australian case on a firm that combined lawyers and other professionals, the form of the engagement survived the challenge and the individual documents did not fare nearly as well: of 116 sample documents tested, 49 were held privileged, six partly, and 61 not privileged at all.
That is the honest shape of it. Setting the work up properly is necessary and it is not sufficient, and anyone who tells you a structure guarantees the outcome has not read the case.
Close
And none of it touches the records you must hold
What it can reach is narrower and still worth having: the group’s own legal analysis of its position, and expert material genuinely brought into existence for a lawyer advising on it. Where that matters, the instruction has to come from the lawyer at the outset rather than be arranged around work already done.
The cases
What has actually been argued, and how it came out
Twelve notes on the decisions behind this page. Each sets out the facts, what the court decided and why the decision matters, with paragraph references so every statement can be checked. They are written as neutral case notes rather than as argument.
02
Full Federal Court, 2017
The loan the group would have made to itself
03
Full Federal Court, 2024
The amendment, not the original agreement
04
High Court, 2025
A royalty inside a fee that names none
05
Full Federal Court, 2011
Comparables, and how far they carry
SNF. Which transactions a company may compare its own dealings with, whether it has to land on a single figure, and how far the OECD Guidelines help in reading a treaty. The taxpayer won.
06
High Court, 1980
Where the Australian rules started
07
High Court, 2008
Who has to prove what
08
Federal Court, 2024
Acquisition debt, tested a second way
Mylan. The same funding decision, attacked under the general anti-avoidance rule rather than the transfer pricing rules, on a different test.
09
Full Federal Court, 2025
Two clocks that do not wait for each other
Oracle. The treaty route for resolving double taxation and the domestic objection route run on separate time limits, and the shorter one governs.
10
Federal Court, 2022
Privilege where lawyers and accountants share a file
11
Federal Court, 2025
Losing privilege over a draft
Alcoa. How draft expert material circulates can give away the protection the company thought it had.
12
Supreme Court of Victoria, 2025
The exposure that surfaced on a share sale
The boundary
Where the legal advice stops, and who answers the rest
We are admitted in Australia and we advise on Australian law, from offices in Sydney, Canberra and Frankfurt am Main. A question of German law is answered from Frankfurt by German lawyers. On the subject of this page, what we answer is what the transaction is: whether Australia can tax the group at all, who contracts with whom and on what terms, whether the agreements describe what actually happens, what a payment is, who has authority to sign, and the deadlines and the onus that attach to all of it.
We are not registered tax agents and nobody here is a Steuerberater. Which pricing method fits a dealing, the comparables and the range, what goes into the documentation file, thin capitalisation, the return and its disclosures, and the conduct of an ATO review or audit are a tax adviser’s work. We say so at the start rather than leaving it to be discovered later.
The firm is a member of the German Professional Services Alliance and works with Accru Felsers on accounting and tax. On a structuring question the accountant’s numbers are usually needed before we draft rather than after, and we will say so when that is the sequence.
Where this touches the rest of the business
The work these questions usually arrive with
Worth reading first
Our writing on the questions around this one
Questions people ask
The short ones
Does this reach a company with only a few people here?
There is no minimum. Simplified record keeping options exist for smaller dealings and they have conditions, so whether you qualify is a question worth asking before you assume either way. The penalty position and the lodgment deadline apply regardless.
We have no intercompany agreement at all. Is that worse?
It is a different problem rather than a worse one. Where there is no agreement the arm’s length conditions are identified from what the parties actually did, and there is nothing inconsistent for the substance to displace. Having an agreement that no longer describes the business is the position that reads against you.
Our German adviser has handled this. Is that enough?
For the German side, very likely. The Australian documentation obligation, the Australian penalty regime and the Australian withholding treatment are separate requirements on the Australian company, and they are not discharged by a German master file.
Can you advise us in German?
Yes, in writing and in conference. The documents themselves are usually in English, because they are governed by Australian law and may have to be read by an Australian court or the ATO.
What does a first look cost?
The first conversation is not charged. It is usually enough for us to say whether anything needs doing, whether an accountant should go first, and what a piece of work would cost before you commit to it.
Is anything on this page advice?
No. It is general information about Australian law, written for a business audience, and it is not advice on any particular arrangement. Figures and thresholds change, and the ones here are stated as at September 2026.
Send us the agreements
The quickest useful thing is usually the intercompany agreements as they stand, with a sentence on what the business does now. We will tell you what matches, what does not, what needs doing and what it will cost, and where you will need an accountant rather than us.
Please note
This is maintenance, not a drafting event. The trigger for reviewing an intercompany agreement is a change in the business, not a change in the law.
Thin capitalisation, the debt deduction creation rules and every figure in a return are a tax adviser’s work and not ours. The point here is that the characterisation question comes first, and it is a question about the arrangement.
What actually goes in the file is a tax adviser’s call. That the file has to exist by a particular date, and what follows if it does not, is law.
A small proprietary company controlled by a foreign company still has to prepare a financial report and a directors’ report unless it is consolidated into statements lodged with ASIC. Being small is not by itself an exemption when the parent is foreign.
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