Swiss pharma giant Roche faces a $60 million tax adjustment after the first court decision involving Australia’s complex transfer pricing rules, which are designed to ensure multinationals pay their fair share of tax.
In a landmark decision, the Administrative Appeals Tribunal increased Roche Australia’s gross profit margin from 37 to 40 per cent, increasing its taxable income by $58.7 million.
While the AAT ruled the original increases sought by the ATO were “excessive”, tax experts said the decision bolstered the tax man’s campaign against transfer pricing, because it backed their method of calculating such adjustments.
The ATO started auditing Roche in late 1998 and issued amended assessments in 2006 covering every year from 1992 to 2002 – a period over which Roche reported $1.4 billion in sales and a gross profit of $531 million.
The ATO argued that Roche paid its Swiss parent more for pharmaceutical products than would be paid by an unrelated customer.
But working out what is a fair price was difficult – and in this case proved almost impossible – as pharmaceutical companies rarely sell their products through third parties.