FEDERAL COURT OF AUSTRALIA Syngenta Crop Protection Pty Ltd (ACN 002 933 717) v Commissioner of Taxation [2005] FCA 1646 PRACTICE AND PROCEDURE – request by taxpayers for further particulars and discovery of documents in income tax 'appeal' – motion dismissed INCOME TAX – issues on appeal in relation to transfer pricing provisions of Act and adjustment of business profits pursuant to double taxation treaty Income Tax Assessment Act 1936 (Cth) ss136, 136AA, 136AD, 136AE, 175, 177 Taxation Administration Act 1953 (Cth) ss 14ZZ, 14ZZO, 14ZZP Convention Between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, Article 7 Commissioner of Taxation v Sleight (2004) 136 FCR 211 referred to SYNGENTA CROP PROTECTION PTY LTD (ACN 002 933 717) v COMMISSIONER OF TAXATION NSD 1039–1044 OF 2004 AMERICAN EXPRESS INTERNATIONAL INC (ABN 15 000 618 208) v COMMISSIONER OF TAXATION NSD 308 OF 2005 GYLES J 9 NOVEMBER 2005 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1039 OF 2004 BETWEEN: SYNGENTA CROP PROTECTION PTY LTD (ACN 002 933 717) APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: GYLES J DATE OF ORDER: 9 NOVEMBER 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The motion be dismissed. 2. Costs of the motion will be the Commissioner's costs in the cause. 3. The matter be stood over to 9.30 am on Wednesday, 7 December 2005 with liberty to restore in the meantime on three days' notice. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1040 OF 2004 BETWEEN: SYNGENTA CROP PROTECTION PTY LTD (ACN 002 933 717) APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: GYLES J DATE OF ORDER: 9 NOVEMBER 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The motion be dismissed. 2. Costs of the motion will be the Commissioner's costs in the cause. 3. The matter be stood over to 9.30 am on Wednesday, 7 December 2005 with liberty to restore in the meantime on three days' notice. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1041 OF 2004 BETWEEN: SYNGENTA CROP PROTECTION PTY LTD (ACN 002 933 717) APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: GYLES J DATE OF ORDER: 9 NOVEMBER 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The motion be dismissed. 2. Costs of the motion will be the Commissioner's costs in the cause. 3. The matter be stood over to 9.30 am on Wednesday, 7 December 2005 with liberty to restore in the meantime on three days' notice. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1042 OF 2004 BETWEEN: SYNGENTA CROP PROTECTION PTY LTD (ACN 002 933 717) APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: GYLES J DATE OF ORDER: 9 NOVEMBER 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The motion be dismissed. 2. Costs of the motion will be the Commissioner's costs in the cause. 3. The matter be stood over to 9.30 am on Wednesday, 7 December 2005 with liberty to restore in the meantime on three days' notice. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1043 OF 2004 BETWEEN: SYNGENTA CROP PROTECTION PTY LTD (ACN 002 933 717) APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: GYLES J DATE OF ORDER: 9 NOVEMBER 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The motion be dismissed. 2. Costs of the motion will be the Commissioner's costs in the cause. 3. The matter be stood over to 9.30 am on Wednesday, 7 December 2005 with liberty to restore in the meantime on three days' notice. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1044 OF 2004 BETWEEN: SYNGENTA CROP PROTECTION PTY LTD (ACN 002 933 717) APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: GYLES J DATE OF ORDER: 9 NOVEMBER 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The motion be dismissed. 2. Costs of the motion will be the Commissioner's costs in the cause. 3. The matter be stood over to 9.30 am on Wednesday, 7 December 2005 with liberty to restore in the meantime on three days' notice. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 308 OF 2005 BETWEEN: AMERICAN EXPRESS INTERNATIONAL INC ABN 15 000 618 208 APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: GYLES J DATE OF ORDER: 9 NOVEMBER 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The motion be dismissed. 2. Costs of the motion will be the Commissioner's costs in the cause. 3. The matter be stood over to 9.30 am on Wednesday, 7 December 2005 with liberty to restore in the meantime on three days' notice. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1039 OF 2004 BETWEEN: SYNGENTA CROP PROTECTION PTY LTD (ACN 002 933 717) APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1040 OF 2004 BETWEEN: SYNGENTA CROP PROTECTION PTY LTD (ACN 002 933 717) APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1041 OF 2004 BETWEEN: SYNGENTA CROP PROTECTION PTY LTD (ACN 002 933 717) APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1042 OF 2004 BETWEEN: SYNGENTA CROP PROTECTION PTY LTD (ACN 002 933 717) APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1043 OF 2004 BETWEEN: SYNGENTA CROP PROTECTION PTY LTD (ACN 002 933 717) APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1044 OF 2004 BETWEEN: SYNGENTA CROP PROTECTION PTY LTD (ACN 002 933 717) APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 308 OF 2005 BETWEEN: AMERICAN EXPRESS INTERNATIONAL INC ABN 15 000 618 208 APPLICANT AND: COMMISSIONER OF TAXATION RESPONDENT JUDGE: GYLES J DATE: 9 NOVEMBER 2005 PLACE: SYDNEY REASONS FOR JUDGMENT 1 It is no disrespect to the very thorough arguments of counsel that I propose to give judgment immediately. Indeed, it is partly as a response to those comprehensive submissions that I am able to do so. I am motivated to do so by several things. The first is that I have come to a clear view which, as the docket judge in charge of the cases, it is best that I give effect to and manage the cases accordingly. After all, interesting and important as some of the questions may be, it is a matter of practice and procedure that has been debated. Furthermore, if I reserved my decision in order to put my reasons into fuller and more elegant shape, I really have no idea when I would be able to return to that task because of the pressures on this Registry of the Court at the moment. That would be undesirable. 2 These are motions being heard together in two 'appeals' to the Court pursuant to Pt IVC of the Taxation Administration Act 1953 (Cth) (the Administration Act)—American Express International Inc v Commissioner of Taxation NSD 308 of 2005 (the American Express case) and Syngenta Crop Protection Pty Ltd v Commissioner of Taxation NSD 1039–1044 of 2004 (the Syngenta case). The questions in each case are not identical although the main issues of principle, it seems to me, can be determined and then applied. The present motions before the Court seek the provision by the respondent Commissioner of further particulars and discovery. 3 In each case the Commissioner has provided a Statement of facts, issues and contentions pursuant to the Rules. In the Syngenta case the applicant has also provided such a Statement. In the American Express case the applicant has not. Thus, these are not cases in which the applicant is without a substantial knowledge of the basis for the assessment on the part of the Commissioner. Rather, it is contended that details of that basis are insufficient. The present procedure whereby Statements of facts, issues and contentions are provided in the first instance by the Commissioner should not be overlooked in considering the matters of practice and procedure which arise in these cases. It is not a procedure that has been in force from time immemorial, and it has, it seems to me, somewhat changed the landscape. 4 Be that as it may, there is no question as a general principle but that an applicant should be left in no doubt as to the basis for assessment. It does not necessarily follow that an applicant needs to know the details of the processes by which assessment came to be made, provided that the basis for assessment is clear. The nature of the case to be made by the applicant should also be made clear. 5 The matter which primarily arises on these motions arises under Div 13 of the Income Tax Assessment Act 1936 (Cth) (the Act), these being what might be loosely called transfer pricing cases. I will take the American Express case as the immediate example. A series of determinations were made purporting to be pursuant to s 136AD and s 136AE of the Act. This resulted in a determination that, in respect of supply of certain identified goods, the arm's length consideration should be a particular figure which was more than the actual consideration involved in the transactions. There was also an adjustment to business profits purporting to be made pursuant to Article 7 of the Convention Between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the Double Tax Convention), the numerical amount of which flows from the numerical result of the adjustment of arm's length consideration. 6 Counsel have taken me to a considerable volume of authority as to the principles which should be applied in relation to the provision of particulars and discovery in cases arising under the Act. The most recent of those cases, heavily relied upon by the Commissioner, is the decision of the Full Court of this Court in Commissioner of Taxation v Sleight (2004) 136 FCR 211, in particular the judgment of Hill J from [103] to [110] which were expressly agreed with by Carr J (at [242]) and by Hely J in a more general agreement (at [247]). After referring to certain authorities, Hill J said (at [107]): 'In other words, it is not open to a taxpayer to challenge an assessment under Pt IVA by showing some error in the making of that determination.' That statement has been attacked by counsel for the taxpayers as being incorrect, if not per incuriam, and therefore cannot be supported, particularly in light of the reasoning which immediately preceded it and that found in other cases. Counsel for the Commissioner defends it and submits that it is the proper conclusion to be drawn both from the relevant appeal provisions and from s 177 of the Act. 7 I do not propose to track through all the authorities or endeavour to reconcile all of the statements in them on the topic. Such statements are not always easy to reconcile, partly because appeals cover many situations. There are many provisions of the Act involved in appeals which differ in many ways from provisions involved in other appeals. It may also be added that the similarity between the Act, the Sales Tax Administration Act (No 1) 1930 (Cth) and the A New Tax System (Goods and Services Tax) Act 1999 (Cth) also invites argument by analogy from cases arising under those different provisions. 8 In my view, the issues in the cases are best looked at by considering the appeal provisions which relate to the Act together with s 175 and s 177. The appeal provisions are contained in Pt IVC of the Administration Act. The substantive provision is s 14ZZ which is as follows: 'Person may seek review of, or appeal against, Commissioner's decision If the person is dissatisfied with the Commissioner's objection decision, the person may: (a) if the decision is both a reviewable objection decision and an appealable objection decision—either: (i) apply to the Tribunal for review of the decision; or (ii) appeal to the Federal Court against the decision; or (b) if the decision is a reviewable objection decision (other than an appealable objection decision)—apply to the Tribunal for review of the decision; or (c) if the decision is an appealable objection decision (other than a reviewable objection decision)—appeal to the Federal Court against the decision.' 9 Division 4 of Pt IVC deals with the review of objection decisions and extension of time refusal decisions by the Administrative Appeals Tribunal and Div 5 relates to Federal Court appeals against objection decisions. As counsel for the taxpayers has submitted, the possibility of appeals in the alternative to a Tribunal or a court have co-existed for very many years and he submits that, broadly speaking, the functions of the Tribunal and the Court respectively have remained the same down the years. That is probably right enough for present purposes. That does not mean, however, that one does not need to pay attention to the language of the principal sections. Section 14ZZ0 and s 14ZZP provide: '14ZZO Grounds of objection and burden of proof In proceedings on an appeal under section 14ZZ to the Federal Court against an appealable objection decision: (a) the appellant is, unless the Court orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and (b) the appellant has the burden of proving that: (i) if the taxation decision concerned is an assessment (other than a franking assessment)—the assessment is excessive; or (ii) if the taxation decision concerned is a franking assessment—the assessment is incorrect; or (iii) in any other case—the taxation decision should not have been made or should have been made differently.' '14ZZP Order of Federal Court on appealable objection decision Where the Federal Court hears an appeal against an appealable objection decision under section 14ZZ, the Court may make such order in relation to the decision as it thinks fit, including an order confirming or varying the decision.' 10 The appeal provided by s 14ZZ and fleshed out in s 14ZZO is a full appeal. It is not limited to what might be called judicial review grounds. The burden that the applicants in the present cases have is to prove that the assessments are excessive. In practical terms, that comes down to proving that the assessment is excessive by reason of the adjustment made to the arms length consideration for the transfer of the transactions in question. In other words, showing that the consideration determined by the Commissioner was too high or too low as the case may be. 11 Section 175 and s 177 of the Act are well known and provide: '175 Validity of assessment The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.' '177 Evidence (1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct. (2) The production of a Gazette containing a notice purporting to be issued by the Commissioner shall be conclusive evidence that the notice was so issued. (3) The production of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a document issued by either the Commissioner, a Second Commissioner, or a Deputy Commissioner, shall be conclusive evidence that the document was so issued. (4) The production of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of or extract from any return or notice of assessment shall be evidence of the matter therein set forth to the same extent as the original would be if it were produced. (5) To avoid doubt, subsection (4) applies to a copy or an extract of a document that was given to the Commissioner on a data processing device or by way of electronic transmission unless the taxpayer can show that the taxpayer did not authorise the document.' 12 In my view, the effect of those sections is consistent with the true construction of s 14ZZ and s 14ZZO. An 'appeal' to the Court assumes the existence of a valid assessment. The validity of the assessment is not an issue before the Court. The issue before the Court is whether the assessment is excessive. That issue is not to be given any narrow or pedantic operation and its content in particular cases will very much depend upon how the issue arises under the substantive provisions of the Act and the particular circumstances of the individual case. 13 It is true that s 136AD and s 136AE of the Act contain more than one step along the way to the assessment. It is also true that there may be argument as to whether some of the matters in the sections are steps along the way or not. It is also true that some of those (in particular the requirement exemplified by s 136AD(1)(b)) refer to the satisfaction of the Commissioner and others (such as s 136AD(1)(d)) refer to a determination by the Commissioner. 14 However, in my opinion, the excessiveness or not of the assessments in the present case involve one issue. That is, whether or not the consideration was 'arm's length consideration', the definition of which from s 136AA is as follows: '(c) a reference to the arm's length consideration in respect of the supply of property is a reference to the consideration that might reasonably be expected to have been received or receivable as consideration in respect of the supply if the property had been supplied under an agreement between independent parties dealing at arm's length with each other in relation to the supply; (d) a reference to the arm's length consideration in respect of the acquisition of property is a reference to the consideration that might reasonably be expected to have been given or agreed to be given in respect of the acquisition if the property had been acquired under an agreement between independent parties dealing at arm's length with each other in relation to the acquisition.' 15 The question as to whether the consideration is that which might reasonably be expected to have been received or receivable as consideration in either a supply or acquisition if the property had been supplied or acquired under an agreement between independent parties dealing at arms length is an objective question. It does not depend upon anybody's opinion, save that of the Court or body making that decision. It is a matter for evidence. In cases such as the present, the taxpayer is very much better equipped to cope with such a question than the Commissioner, the taxpayer being in the trade itself. Furthermore, the burden of showing that the consideration nominated by the Commissioner is excessive or inadequate as the case may be is not, in my view, a very high burden as it is to be decided on the balance of probabilities. I am not suggesting that the factual question may not be difficult and may not involve contestable questions of fact, but they are the types of questions with which courts commonly deal. I can see no disadvantage to a taxpayer in addressing itself to that issue. If this is correct, it renders irrelevant almost all of the contentions in the submissions before me which have complicated these matters. 16 If there was concentration on what the proper arm's length consideration for these transactions was and all the other complications were forgotten, then there would be a case that is manageable and determinable in a proper time frame and without any undue complexity or technicality. In my opinion, that is what should happen. From what I can understand, there is no difficulty in working out precisely what the Commissioner claims the consideration should be for the particular transactions. If I am wrong about that I would, of course, hear submissions but, assuming that to be correct, the details of the processes by which assessment came to be made by the Commissioner seem to me to be entirely irrelevant. 17 The Commissioner's opinion is no evidence of the fact. All the judge hearing the case would be interested in is what the independent evidence suggests. Considerations such as whether or not the Commissioner has had expert advice or whether the Commissioner understands the businesses and so on are beside the point. The taxpayers certainly do and there should be no difficulty in proceeding with the cases. 18 I do not see any distinction between the American Express case and the Syngenta case in that respect. It follows of course that the discovery now sought from the Commissioner is pretty much entirely irrelevant, although I would not make a final judgment about discovery yet. That would depend upon what evidence that the Commissioner calls and from whom and under what circumstances. It may be that once that is known, there will be a case for discovery or some other ancillary process. The Court will be involved in a fairly conventional valuation exercise. 19 That is my ruling in principle. I regard my view as being consistent with Sleight's case and consistent with the submissions made to me on behalf of the Commissioner as to that case. However, I do not regard Sleight's case as necessary to the conclusion I have come to, which is a result of my view as to how the appeal provisions should work in a case such as the present. It is clear from what I have said that I do not regard this proceeding as being a quasi judicial review proceeding in any sense, regardless of the position in relation to other sections differently framed. 20 For the purposes of this ruling, I have regarded the treaty rulings, if I can put them that way, as being a practical consequence of the s 136AD and s 136AE determinations. Technically that may not be correct, as I think counsel for Syngenta has indicated. I reserve for later consideration, in the management of the case, any difficulties that that may cause. 21 In each matter the motion is dismissed. Costs of the motion will be Commissioner's costs in the cause. Each matter is stood over to 9.30 am on Wednesday, 7 December 2005 with liberty to restore in the meantime on three days' notice. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles. Associate: Dated: 15 November 2005 Counsel for the Applicant (Syngenta Crop Protection Pty Ltd (ACN 002 933 717): DH Bloom QC, J Hmelnitsky Solicitor for the Applicant (Syngenta Crop Protection Pty Ltd (ACN 002 933 717): Maddocks Lawyers Counsel for the Applicant (American Express International Inc (ABN 15 000 618 208): DH Bloom QC, TM Thawley, JH Momsen Solicitor for the Applicant (American Express International Inc (ABN 15 000 618 208) Minter Ellison Counsel for the Respondent: BJ Shaw QC, MM Gordon SC, J Davies SC, SHP Steward Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 9 November 2005 Date of Judgment: 9 November 2005