Case note

What a taxpayer can and cannot put in issue on a tax appeal

W R Carpenter Holdings Pty Ltd v Federal Commissioner of Taxation (2008) 237 CLR 198; [2008] HCA 33

Taxpayers assessed under the transfer pricing rules sought particulars of whether the Commissioner had considered fairness to them, the absence of a tax avoidance purpose and the absence of a profit shifting motive. The High Court held that none of the three is a matter he is obliged to consider, so none of them could be an issue on the appeal. The decision marks the boundary of what a taxpayer can litigate.

Court

High Court of Australia

Bench

Gleeson CJ, Gummow, Kirby, Hayne, Heydon, Crennan and Kiefel JJ, in a single unanimous judgment

Decided

31 July 2008

Outcome

Appeals dismissed with costs

The facts

The appellants were Australian companies in the Griffin Group. Following an audit, the Commissioner assessed seven Group members in June 2004 for income years falling between 1986 and 2002: [2].

Two transactions were in issue and both were intra-group funding out of Australia on terms that carried no return. In the first, an Australian company sold shares in Group companies to a Group company incorporated in Cyprus for about $129 million, of which about $79 million was payable at the end of fifteen years with no interest. In the second, an Australian company provided loans and guarantee fees to a Group company incorporated in the United States on which no interest was charged, and later wrote them off: [4], [18].

Against each, the Commissioner imputed an arm's length interest return under Division 13, assessing about $17.9 million of deemed interest in the first case for a single year and about $986,000 in the second: [4], [18].

It is important to be clear about what stage the litigation had reached. This was not a hearing about whether those assessments were right. It was an interlocutory application for particulars, brought within appeals that were still pending, and the Court expressly left the underlying facts to be resolved in them: [30].

What was in dispute

Section 136AD(1) allowed the Commissioner to substitute an arm's length consideration where its first three paragraphs were satisfied and, by paragraph (d), where he determined that the subsection should apply. The appellants sought particulars directed at that determination.

They said the Commissioner was obliged to take three matters into account when making it: fairness and reasonableness to them, the absence of a tax avoidance purpose, and the absence of a profit shifting motive. If he was, then whether he had done so was something they could put in issue on the appeal, and they were entitled to know the answer.

What the Court decided

The appeals were dismissed with costs, in one set of reasons with no dissent: [1], [44].

The Court first reframed the question. Asking whether a "discretion" had been properly exercised was, it accepted, apt to distract from the real task, which is to identify the area of the power conferred. The test is whether there is sufficient warrant in the text of the Division, and in its subject matter, scope and purpose, for action on a particular consideration: [31].

There is no sufficient warrant in the text of Div 13, its subject matter, scope and purpose, to conclude that the Commissioner was obliged to consider any one or more of the three matters relied on by the appellants (fairness and reasonableness to them in the application of the sub‑section, absence of "a tax avoidance purpose", and absence of "a profit shifting motive"). It follows that those matters cannot present issues for the appeals and particulars would be otiose.

The Court at [31].

Two structural reasons supported that conclusion. Fairness and reasonableness were dealt with by a different provision, s 136AF, which allowed a compensating determination, could be requested by a taxpayer at any time, and carried its own objection right. The existence of that detailed machinery indicated that the same questions did not also fall for consideration under paragraph (d): [26], [27], [34].

And Division 13 required no purpose or motive at all. The Treasurer had described transfer pricing arrangements as entered into for a complex mixture of tax and other reasons, and had said that the absence of a tax purpose was no reason for the country to be unable to counteract a loss of Australian tax. Building a motive test into the provision would have burdened the arm's length principle the Division was founded on: [36], [37].

The Court also made a point about evidence that has nothing to do with transfer pricing and is worth carrying away. To a significant degree the appellants were seeking the Commissioner's understanding of objective facts about their own transactions. His opinion about those facts can be no evidence of them, because they exist or do not exist irrespective of his attitude, and the burden of proving them rested on the appellants, who were closer to the facts than he was: [30].

Several larger questions were expressly left open, and the case is often stated more broadly than it was decided. The Court did not decide whether paragraph (d) supplies a criterion of liability testable on appeal, nor the range of considerations that might properly lead the Commissioner not to make a determination, nor anything further about the provisions protecting an assessment from challenge: [17], [28], [41] to [43].

Why the decision matters

The decision draws the line between the two things a taxpayer might want to attack. An appeal against an assessment is about the substantive liability, not about the quality of the administrative process that produced it. An error in following the procedure does not necessarily produce an error in the amount: [6]. That is why showing that the Commissioner went wrong somewhere is not, without more, a route to relief.

It should not be overstated. The judgment does not say that the Commissioner's reasoning is beyond review in all circumstances; the familiar grounds on which an opinion or determination can be impugned are preserved. What it holds is narrower and harder: the three particular matters relied on were not matters he was bound to take into account, so they could not become issues in the appeal.

For the transfer pricing rules specifically, the case is the clearest authority that they do not turn on purpose. A group that has excellent commercial reasons for an arrangement, and no thought of tax, is in exactly the same position under these provisions as a group that does not. That is the feature which separates them from the general anti-avoidance rule, where purpose is the entire question, and it is why the same funding decision can be tested twice on two different standards.

One caution about how the case is cited. It is sometimes offered as authority for the proposition that a taxpayer must prove not only that an assessment is wrong but what the correct figure should have been. That proposition is good law, but its source is Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614, not this case. What this judgment says is that the burden is to prove the assessment excessive, and that "excessive" is directed to the substantive liability: [5], [6].

Where it stands

The decision stands and is frequently applied. The citator material read for this note records thirty-seven citing decisions, the most recent being a Full Federal Court decision of 26 November 2025, with no overruling, disapproval or doubt anywhere.

In the transfer pricing cases it is cited almost entirely for one proposition, that the provisions require no inquiry into purpose or motive: [38]. It was applied on that basis in SNF, in Chevron, in both Glencore decisions and in Singapore Telecom.

The provision it construed, s 136AD, has been repealed, and Subdivision 815-B of the Income Tax Assessment Act 1997 (Cth) now governs. Nothing in the citator material read applies this decision to Subdivision 815-B. The parts of the reasoning that are about Division 13 specifically, including the role of s 136AF, went with the Division. The general propositions about what is in issue on a tax appeal, and about the limits of reviewing the Commissioner's determinations, are pitched above the repealed text and continue to be applied.

A case note by Boettcher Law. It is general information about Australian law and a summary of a published decision, and it is not legal advice on any particular arrangement. Paragraph references are to the Court's reasons.