The Emerging Doctrine of “Commercial Rationality” in Transfer Pricing Inquiries

It is often said that the mere fact that a transaction may not be seen between independent parties does not mean it is not arm's length. However, Australian courts are increasingly insisting on observable market evidence of the “commercial rationality” of a transaction. This article considers the origins of the “commercial rationality” concept in the OECD Guidelines, its emergence as a defining feature of Australian transfer pricing jurisprudence and the practical implications of this for taxpayers.