Federal Court Justice Jennifer Davies on Tuesday allowed Glencore’s appeal, set aside the Commissioner’s adjusted income assessments for the 2007 to 2009 financial years and ordered the ATO to pay Glencore’s costs.

The judge also criticised the mining industry experts retained by the parties in the case, saying they “strayed from time to time” into the role of advocates by providing opinions they were not qualified to give. In the case of the expert for the Commissioner, there was also “significant uncertainty” as to the how much of his expert report he had authored, she said.

The ruling is a win for Glencore after its defeat before the High Court late last month in a separate fight with the ATO over leaked evidence related to its offshore assets.

The ATO assessed Glencore for tax purposes as the head of a multiple entry consolidated (MEC) group, of which Cobar Management is a member. Cobar, which operated the CSA mine in Cobar, NSW during the relevant years, sold 100 percent of the copper concentrate produced at the mine to Glencore, its Swiss parent.

The income assessments for 2007, 2008 and 2009 were raised by the Commissioner under the Income Tax Assessment Act 1997 on the grounds that Glencore paid Cobar less for the copper concentrate than might reasonably be expected to have been paid in an arm’s length dealing between independent parties. The ATO increased the tax payable by Glencore for the three years by $72 million and imposed shortfall interest charges of another $20 million.

Glencore, which acquired the CSA mine in 1998 and purchases all the copper concentrate produced at the mine for sale to smelters, entered into a new contract with Cobar In February 2007. Under that agreement, the copper concentrate sold to Glencore would be priced using the official London Metal Exchange cash settlement price for copper grade “A” averaged over “the quotational period” as a reference point. A fixed 23 percent deduction, known as price sharing, would be made from the reference price for treatment and copper refining charges.

The ATO adjusted Glencore’s income to reflect the impact of a “consistently applied quotational period” and to remove the effect of the price-sharing deal, which it said would not have been entered into by an independent mine operator.

But Glencore argued that the pricing terms under the relevant contract were terms that existed in contracts for the sale of copper concentrate between independent market participants and would be found in an agreement with the relevant hypothetical parties.

In siding with Glencore, Justice Davies said the Commissioner’s case was a “misapplication” of the ITAA and that the consideration paid to Cobar was within an arm’s length range.

“I am satisfied on the evidence that it might reasonably be expected that an independent mine producer in the position of [Cobar] might be expected to enter into a price sharing agreement in early 2007,” Justice Davies said.

“It cannot be said that the entry into a price sharing contract was irrational, having regard to the benefits of such contracts and the market circumstances.”

Glencore was represented by John De Wijn QC, instructed by King & Wood Mallesons. The ATO was represented by Kristina Stern SC, instructed by the Australian Government Solicitor.

The case is Glencore Investment Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia.