During the relevant period Daihatsu Australia Pty Limited was an importer and wholesale distributor of motor vehicles and spare parts manufactured by Daihatsu Motor Corporation Limited, a company incorporated in Japan, which was at the relevant times a majority shareholder in Daihatsu Australia.
In 2000 the the tax authorities issued Daihatsu Australia with a Notice of Amended Assessment for FY 1992 - 1996 where transfer pricing adjustments had been made to taxable income. In the letter accompanying the assessments it was noted that an audit had been conducted “with a particular focus on the consideration paid for imported vehicles for the period 1992 to 1997” and according to the tax authorities the price paid for these vehicles had been above the arm's length price. The price had therefore been adjusted downwards.
Daihatsu filed a complaint that eventually ended up in the Federal Court.
Judgement of the Court
The Court upheld the assessment of additional income issued by the tax authorities.
Excerpts
"What is clear both from the premise of the Hickman principle itself and from judicial treatment of the "bona fide attempt" formula is that, in the setting of s 175 and s 177(1), the cases will be rare and extreme in which a bad faith assessment will be able to be made out for Hickman purposes. Often, I do not say invariably, they will be cases (i) where, knowingly, the assessment power has been exercised for an improper purpose; or (ii) where the purported assessment involved no actual attempt to ascertain or calculate the taxpayer's income as, for example, where the assessment was made on facts "known … to be untrue": Darrell Lea Chocolates, at 188."
"The submissions based on the third Hickman proposition - that the assessments were not reasonably capable of reference to the power to assess and the determinations were not reasonably capable of reference to the power given by Division 13 of the ITA Act - can be dismissed shortly.
To the extent that the matters founding the no bona fide attempt claim are repackaged and relied upon for this ground – ie failure to observe guidelines, etc; and failure to take a view on each year – my previous findings are fatal to these here as well.
Additionally, DAPL has claimed that (i) the Commissioner had such information available to it as to have made it possible and practicable to have determined arms length consideration without the necessity to rely upon s 136AD(4); and (ii) Article 5 of the double taxation agreement with Japan provided no power to make transfer pricing adjustments so that any reliance thereon by the Commissioner was wholly misconceived. The latter of these submissions is founded upon the opinion of an English lawyer which I directed was to be received as a submission: see Federal Court Rules O 10 r 1(2)(j). That opinion made no reference to s 4 and s 8 of the International Agreements Act which give the Japanese agreement (insofar as presently relevant) the force of law in Australia and incorporate it into the ITA Act.
Both submissions are untenable. The sufficiency of the information available to the Commissioner to make it practicable and possible to ascertain an "arm's length consideration" (s 136AD(3) and (4)) would seem, prima facie, to be a matter for the judgment of the Commissioner. DAPL, I would note, has made no contrary submission that the insufficiency of the information available was itself an "objective" or "jurisdictional fact" to be determined before resort could be had to s 136AD(4): on jurisdictional facts, see Corporation of the City of Enfield v Development Assessment Commission (1999) 199 CLR 135; Cabal v Attorney-General of the Commonwealth [2001] FCA 583; Aronson, "The Resurgence of Jurisdictional Facts", (2001) 12 PLR 17. In the absence of such submission I express no view on that matter. At best the allegation made is that it was an error of judgment for Mr Coakley to decide to act as if he had insufficient information in the circumstances. But that error (if such there was) in no way changed the character of what Mr Coakley did. He relied, as he intended to, on s 136AD(4) in making his determination and what he did was reasonably capable of reference to that power.
As to the submission based on the Japan agreement, I need only indicate that the International Agreements Act gives the Japan agreement the force I have noted above. Even if the agreement, as incorporated into Australian law, did not authorise the inclusion of the appropriate "profits" in the taxable income of DAPL, the determinations made under s 136AD have the result of increasing the returned and previously assessed taxable income of DAPL accordingly. Both the agreement and the provisions of Division 13 of the ITA Act were relied upon in making the assessments (and in the notices thereof). In consequence the assessments were reasonably capable of reference to a power (or powers) given the Commissioner.
I reject the appellant's submissions."
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Daihatsu-Australia-Pty-Limited-2001-FCA-588
FCA 588"]