(a) the first set of comparables
14 This first set was selected by one of the taxpayer's witnesses, a Mr Karoudjian, who was the customer services manager at SNF France. He explained in his evidence that the products sold by SNF France were divided into product groups. There were at least thirteen such groups and within each group there was usually, although not invariably, more than one product. The product group 'Liquides Polyamines', for example, consisted of the products DP/FL175, FL175, PC/CP2468, FL18-40 and FL28. Mr Karoudjian had access to all of the sales data for SNF France which he examined. He first determined the product groups into which the products purchased by the taxpayer fell. He then identified other independent purchasers buying products in the same groups in similar volumes. Mr Karoudjian also applied a further criterion: he sifted the transactions so as to include only those purchasers whom he believed to be distributors of product. From that process he obtained a list of five companies: Akzo Nobel NV, Betz Laboratories Inc, Hercules Inc, Ashland Inc and Buckman Laboratories International Inc and in his affidavit evidence he explained, principally, but not solely, by reference to its activities as a distributor what he believed each of the companies did. Because they had been expressed in different currencies, Mr Karoudjian converted all of the sales prices into Euros as at each invoice date. There were differences too between the terms on which the supplies occurred: some were CIF (carriage insurance and freight included), some were CBE (carriage not included in the price), others were EXW (which meant that no additional costs were included); there were many other similar such variations in terms but Mr Karoudjian attended to each. In light of those disparate terms, he deducted the transportation costs to ensure, in effect, that the sales data for the companies examined was pitched on a level surface. He then took the average price for each product group across each year for each purchaser. From that process he was able to collate tables of data which showed generally, but not altogether without variation, that the prices paid by the taxpayer were lower than those paid by the five companies he had identified.
15 The Commissioner's attack on this evidence was both procedural and substantive. At the procedural level, counsel for the Commissioner cross-examined Mr Karoudjian and obtained from him useful concessions that he had no direct knowledge about the activities of the five companies so that his evidence on that issue was unmasked as hearsay to which the Commissioner then objected. The trial judge accepted this objection and ruled inadmissible any statements in Mr Karoudjian's evidence concerning 'the status of customers, as to whether or not they were end users or distributors of similar products' (at [108]). With the taxpayer apparently then bereft of direct evidence about the nature of the businesses conducted by the five companies, the argument mounted by the Commissioner was that the transactions had not been shown to be comparable because the businesses were not shown to belong to the same genus as the taxpayer. At the level of substance, the Commissioner advanced the opinion of Dr Becker who denied that it was correct, or at any rate useful, to examine the products by way of groups: the averaging of prices concealed significant variations within the groups and those variations, once revealed, diminished the capacity of the five companies to serve as comparables.
16 The taxpayer's responses, like the Commissioner's initial criticisms, were in terms both procedural and substantive. Procedurally, the taxpayer parried the Commissioner's objections to Mr Karoudjian's evidence by tendering annual reports for the five companies to establish that they were, indeed, distributors rather than end-users of the products; substantively, more evidence was called up to meet Dr Becker's objections. That evidence took the form of an opinion from Mr Seve, an accountant apparently expert in matters pertaining to transfer pricing. One may see in Mr Seve's evidence the serving of distinct aims: on the one hand, the shoring up of Mr Karoudjian's evidence by endorsement of his five companies as appropriate comparable purchasers; on the other, the assertion of fresh comparable purchasers based this time, not on product groups, as Mr Karoudjian's evidence had been, but instead on references to individual products purchased by the taxpayer and the comparables.
17 Before this Court the taxpayer submitted that the evidence showed that the five companies were distributors rather than end-users. As to all five companies - Akzo Nobel NV, Betz Laboratories Inc ('Betz'), Hercules Inc ('Hercules'), Ashland Inc ('Ashland') and Buckman Laboratories International Inc ('Buckman')- the taxpayer's witness, Mr Schlag, gave evidence that he had selected them (in a corresponding comparables exercise in relation to the US supplier) because 'they all purchased at least some identical products and they were distributors of these products in their respective marketplaces'. Another of the taxpayer's witnesses, Mr Schroeter, gave evidence that Buckman and Akzo Nobel NV were distributing flocculants (a sub-class of polyacrylamides) in the Australian market. The Commissioner sought to overcome this evidence in two ways: Mr Schlag's evidence was not to be understood as evidence of the comparability of the functions of the five companies but was to be seen merely as the reason why he had selected them in the first place; moreover, the evidence of Mr Schlag and Mr Schroeter was inadmissible hearsay (although he accepted that no objection had been taken to it at trial).
18 The taxpayer made other points too. The Commissioner's complaints about Ashland and Hercules were said by the taxpayer to be unfounded because the Commissioner's witness, Dr Becker, had himself accepted that both were distributors. Away from Dr Becker, the taxpayer submitted that account should be taken of the nature of polyacrylamides, their purpose in the industrial process and their distinct quality of not being an ingredient of some other product. The users of polyacrylamides were said by the taxpayer - it bears repetition - to be the mining industry, those involved in the treatment of sewage and the pulp and paper milling industry. So understood, and with that contextual background in mind, the annual reports of the five companies would reveal them, both in terms and in substance, as distributors of polyacrylamides for self-evidently they were not participants in any of those three industries.
19 The annual report for Buckman in 2005 showed that it was a seller of chemical products: 'Sales to the Company's three target markets (pulp & paper, water, and leather) accounted for 88.6% of total sales'; the annual report of Akzo Nobel NV in 2000 exposed its nature as a multinational engaged in three industries - pharmaceuticals, coatings (i.e. car finishings and the like) and 'chemicals' - with the last industry including a significant division supplying chemicals for the pulp and paper industries; the Form 10-K lodged with the United States Securities and Exchange Commission for BetzDearborn Inc for the 1997 year revealed that it was also called Betz Laboratories Inc and that it and its subsidiaries were 'engaged in the engineered specialty chemical treatment of water and industrial process systems operating in a wide variety of industrial and commercial applications with particular emphasis on the chemical, petroleum refining, paper, food processing, automotive, steel and power industries' and that it 'develops, produces and markets a wide range of specialty chemical products, and provides the technical expertise necessary to utilize the products effectively'. A similar extract for Hercules indicated the existence of a division called 'process chemicals and services' which were 'designed to enhance the manufacturing processes, reduce the operating costs or improve the quality of the end products of our customers' and that 'important raw materials for that division 'are cationic and anionic polyacrylamides'. The Form 10-k for Ashland for the year 2000 showed it to be a diversified multinational with an industrial division providing 'process chemicals and technical services to the pulp and paper and mining industries'.
20 Having identified the nature of those businesses what was clear, said the taxpayer, was that they were not engaged in the conduct of mining, pulp and paper milling or sewage treatment wherefrom it must follow that the five companies must have been - just like the taxpayer - engaged in the distribution of polyacrylamides or, most favourably to the Commissioner, doing no more than providing services to those industries. Counsel for the Commissioner accepted in reply that there was no evidence that polyacrylamides were used as constituent elements in other products, an important concession.
21 The taxpayer did not rest on that evidence alone. It recalled the evidence of M. Pich who in his affidavit had indicated that it was a key strategy of the SNF Group 'to derive income from the wholesale sale of large volumes of flocculants to distributors and re-sellers, who then on-sell to the end users of the product' and it called in aid of the deduction which might reasonably be drawn from that evidence that it was likely that the entities buying from the group bore that character.
22 The trial judge's treatment of this issue was brief. He quoted from the evidence of Mr Schlag and Mr Schroeter and recorded that the taxpayer 'also tendered a number of annual reports of various companies which demonstrated that the customers carried on selling operations and were not end users of the products' (at [85]) although he did not identify which companies were involved. That documentary evidence, he concluded, 'supported the evidence which was not objected to of Mr Schlag and Mr Schroeter'. He went on to say: 'On the available evidence, I make the following observations and findings as to the comparable transactions:…(b) The taxpayer sold the large majority of products to end-users, although there were exceptional circumstances where this did not occur' (at [144]). He then recorded his reasons for that (and other findings) at [145]:
I make these findings on the bases of the admissible data produced by the witnesses called by the taxpayer, the documentation tendered by the taxpayer relating to the customers and purchasers, and affidavits of Mr Pich, Mr Schroeter, Mr Karoudjian and Mr Schlag to the extent not objected to by the Commissioner. It will be apparent that the matters sought to be proved by the evidence objected to by the Commissioner have been proved by other evidence not otherwise objected to.
23 Before this Court the Commissioner pursued the argument that there was no, or no sufficient, evidence for this conclusion. That there was evidence that the five companies were not end-users is plain and the Commissioner's submission to the contrary is untenable. It is true that the effect of the trial judge's rulings on evidence was to exclude Mr Karoudjian's evidence that four of the five companies were distributors but his evidence was far from isolated (the reference to four of the five companies requires explanation: for reasons given in Section IV, infra, Mr Karoudjian's evidence about one of the companies, Buckman, was in fact admitted into evidence). There was evidence to the same effect from Mr Schlag and, in the case of Akzo Nobel NV and Buckman, from Mr Schroeter: 'Other companies that were distributing flocculants and coagulants in Australia included…Akzo-Nobel, Buckman Laboratories…'. As to that evidence one should accept neither the Commissioner's submission that Mr Schlag was not giving evidence that the five companies were distributors but merely explaining why he selected them, nor his contention that Mr Schlag's evidence and the evidence of Mr Schroeter was, in any event, inadmissible hearsay.
24 Neither of those arguments is sound. It is true that Mr Schlag was explaining the reasons for his selection of the five companies but the reason he selected them was because he thought they had the characteristics he described. The Commissioner's argument impermissibly treats those two concepts as mutually exclusive whereas they are, in fact, coincident. As to the second argument, there are two problems. The first is that an examination of Mr Schlag's evidence about his reasons for choosing these five companies- 'The Customers were selected as they all purchased at least some identical products and they were distributors of these products in their respective marketplaces' - does not reveal it to be hearsay. It is possible that cross-examination of Mr Schlag might have revealed that he did not have direct knowledge of these matters and that what appeared to be direct testimony was, in truth, hearsay but Mr Schlag was not cross-examined and this was not demonstrated. The Commissioner's argument that this evidence was inadmissible hearsay rests therefore upon the unarticulated premise that, had Mr Schlag been asked how he knew of the matters to which he deposed, he would have answered that he had been told them by someone else or had gleaned it from some other document. But, it need hardly be said, he may equally have explained that he used to work for one or more of those businesses, or that he had made it an area of special study, or that his duties included some which might ordinarily be expected to equip him with such knowledge. That being so it is simply not appropriate to conclude that Mr Schlag's evidence was, as the Commissioner submits, hearsay.
25 Even if it were shown that Mr Schlag's evidence was hearsay and assuming that Mr Schroeter's was too, it would not follow that the trial judge was disabled from acting upon it once it was admitted into evidence, as it was, without objection. There is, in the Commissioner's favour, some academic support for the proposition that inadmissible hearsay, even when admitted, continues to have no value. The best arguments were marshalled by Professor W N Harrison in 'Hearsay admitted without objection' (1955) 7 Res Jud 58. Reference is made in that article (at 69-70) to Walker v Walker (1937) 57 CLR 630 which appears to show that a hearsay letter, once placed in evidence, is a legitimate source of probative material. Only Starke J arrived at the contrary conclusion. Of the four judges in the majority on this point, Evatt J (at 638) perhaps put it most clearly: 'I deny the proposition that, merely because the document was 'hearsay' and therefore inadmissible, it is necessarily deprived of probative value'. Professor Harrison sought to argue that Walker was better understood as a decision dealing with the principle which requires a cross-examiner who calls for a document to place it into evidence but this cannot be correct. Walker deals with both arguments and deals with them separately. So much is clear from the dissenting judgment of Starke J who agreed with the other judges as to the operation of the cross-examination rule (at 635) but disagreed with them about what the status of the document was once it was placed in evidence. That being so, Walker binds this Court to reject the Commissioner's contention.
26 In any event, later commentators have differed from Professor Harrison. Professor Heydon, as his Honour then was, commented that a contrary view to Professor Harrison's was preferable 'if only to prevent a large jump in the number of possible appeals based on the hearsay rule': 'Current Trends in the Law of Evidence' (1977) Sydney Law Review 305 at 307 fn 7; an observation having a certain resonance with the present appeal. The same author in the eighth edition of Cross on Evidence observed that 'the modern authorities appear to have moved beyond the conclusion for which Harrison contended': at [1680] p 133. In that regard, it is useful to note the conclusion reached by Spigelman CJ in Seltsam Pty Ltd v McGuinness (2000) 49 NSWLR 262 at 287 [149] that the words 'not admissible' in the Evidence Act 1995 (NSW) means 'not admissible over objection'. No principled reason for approaching the meaning of the same words in the statutory embodiment of the hearsay rule (s 59 of the Evidence Act 1995 (Cth)) presents itself; no justification for taking some other course.
27 Nor ought one to accept the burden of the Commissioner's secondary argument that the trial judge should not, in any event, have accepted this evidence as going to the question of weight. Before this Court that argument was revealed to have two facets: the hearsay nature of the evidence degraded its probative value and an examination of the scope of the five companies revealed that they were not comparable even if they were distributors. But hearsay is not inherently unreliable; each case turns on the hearsay in question and the merits of the matter will be driven by an assessment of its reliability. In this case, those merits slant decidedly against the Commissioner for it is not to be forgotten who these witnesses were. Mr Schag was the corporate controller of the US supplier and Mr Schroeter, the managing director of the taxpayer. Located in such senior positions within the SNF Group, it cannot be correct to suggest that the information internally supplied to them about the nature of the customers to whom the SNF Group sold its product would be unreliable. Quite the opposite is the case: situated where they were within the institutional framework of the SNF Group the more natural inference is not that the information they received about such customers would be unreliable but, entirely to the contrary, that it would be cogent.
28 We also reject the Commissioner's argument that the businesses of the five companies were different to the taxpayer's and hence their status as distributors, even if otherwise established, was to be set at nought. Here the point was that the taxpayer was small and the five companies large. Save for the matter of customer rebates, however, there was nothing to which this Court was taken by the Commissioner to suggest that the size of comparable distributors had any effect on the prices paid by them. And, insofar as the rebates were concerned, the evidence of Mr Karoudjian was that these had been taken into account in adjusting the prices for the comparison process. Mr Karoudjian gave precise evidence at paragraphs 58-76 of his supplementary affidavit, to which no objection was taken, about the pricing discounts which were given to various customers. Discounts or rebates were given to a number of companies; the only relevant rebate Mr Karoudjian found in his analysis was to Akzo Nobel NV. In those circumstances, no reason appears for declining to accept the five companies as distributors performing a similar function to the taxpayer; still less when the evidence of M. Pich that the 'usual model SNF Group subsidiaries is to sell primarily to re-sellers' is brought to account. It need hardly be added that M. Pich's evidence of that matter needs to be seen in a context which includes both the failure by the Commissioner to suggest to him that this evidence was wrong - an essential aspect of fairness - and the trial judge's conclusion - not directly confronted in this Court - that M. Pich was a witness of credit.
29 The lay and documentary evidence before the trial judge therefore abundantly supported the notion that the five companies were equivalent distributors. But the taxpayer's evidence went, in fact, beyond this for its expert witness, Mr Seve, also opined that the five companies were appropriate comparables. The Commissioner attacked this evidence too and here his point was that the taxpayer had failed to prove the assumptions on which Mr Seve's opinion rested, rendering it irrelevant. Mr Seve's evidence was that he exposed Mr Karoudjian's five companies to a comparability analysis which he drew from an Organization for Economic Co-operation and Development ('OECD') publication, Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Each comparable was to be considered against a register of five comparability factors. The factors were: the characteristics of the property in question; the functions (i.e. activities) of the proposed comparables; the contractual terms and conditions on which the comparable transactions took place; the economic circumstances of the markets in which the transactions occurred; and the business strategies of the respective parties.
30 Although Dr Becker had sounded a warning about Mr Karoudjian's use of product groups rather than precise products, the Commissioner before this Court abandoned any suggestion that the products purchased by the five companies were any different to those purchased by the taxpayer. But debate persisted about the remaining factors. The Commissioner submitted that the taxpayer had failed to prove that the five companies were functionally equivalent to the taxpayer. It will be apparent from what has been said already that this contention is essentially unsustainable: it was established by the evidence of Mr Schlag, Mr Schroeter, the annual reports set out above and the evidence from M. Pich that the SNF Group sold to distributors and by Mr Karoudjian's evidence that Buckman was a distributor. So far as Mr Seve's evidence is concerned, the Commissioner mounted a somewhat different variant of the previous complaints made about the status of the five companies: it was not shown, so the Commissioner submitted, that the five companies occupied similar places in the supply chain; those further along the chain, closer, as it were, to the end-users might be charged higher amounts (in perhaps the same way that retailers are charged more than wholesalers). But this cannot be accepted for the fact is that functional comparability was shown. The five companies were each distributors and, as the trial judge correctly observed at [155], they were distributors purchasing from the French supplier. One does not begin to discern from the Commissioner's submissions the reasons why these five companies, large multinational chemical distributors as they were, might be charged different tariffs due to their propinquity to the ultimate consumer; one does not start to see the kinds of factors - economies of scale, increased levels of customer service and so on - which explain alike the frequent disparity seen between retail and wholesale pricing. One sees instead only their size, their function and their location only one link down the chain of supply from the French supplier. Functional comparability was established.
31 Nor is there substance in the Commissioner's argument, pursued in writing and again orally, that there was no evidence supporting Mr Seve's treatment of the terms of the contracts governing the transactions. Mr Seve had before him the complete set of the French suppliers' sales to all of its customers. These were provided to him in separate Microsoft Excel files, one for each year. Those data contained a field setting out the delivery terms. Just as Mr Karoudjian had, Mr Seve then adjusted the prices in the data so that they were all ex-works prices and it was those adjusted figures he used. The full set of that data was placed in evidence before the trial judge as Exhibit DK13 to the affidavit of Mr Karoudjian of 13 November 2008. Resort to that exhibit shows the delivery terms, the products concerned and the purchasers. Further, of the payment terms Mr Seve himself noted, at paragraph 11.15 of his report, that the taxpayer paid on delivery whereas the five companies were generally on 14 to 90 day terms. He concluded that matter was immaterial. The evidence, therefore, of the contractual terms was extensive and the Commissioner's 'no evidence' ground correspondingly unmeritorious. The trial judge's conclusions about this evidence were short: 'The essential terms of the comparable transactions were the same or similar to those of the taxpayer including the size of the orders, the terms of payment and delivery, and taking into account currency conversions and isolated rebates' (at [144(b)]). Error may be discerned in that conclusion insofar as it suggests that the terms of the contracts were the same; they were not and neither Mr Karoudjian nor Mr Seve suggested they were. Error may be discerned too in the statement that the terms of payment were the same; they were not as Mr Seve explained. It falls then to this Court to form its own views about those two matters on the material before it. The correct finding about those two matters, in light of the above evidence, was that Mr Kaorudjian and Mr Seve had rendered the sales data effectively neutral on delivery terms by normalising it and that the payment terms were different but in an immaterial way. Those conclusions provide no warrant, however, for a departure from the balance of the trial judge's reasoning process to which they are not material.
32 According to Mr Seve, the next of his comparability factors - the economic circumstances - required a consideration of 'whether the markets in which the independent and associated enterprises operate are comparable, and in particular differences that exist do not have a material effect on the price relevant to the potential comparable transaction [sic]'. One ought to dispense at once with the Commissioner's initial argument that 'no evidence was led about the economic circumstances of those parties and in particular whether they purchased and sold at a profit'. That submission misses altogether the end to which this factor was plainly bent. It was not concerned with the economic circumstances of the parties but of the markets in which the transactions were taking place. Nor, it should be noted for the sake of completeness, did the Commissioner submit to us that Mr Seve's conclusion that the markets were 'broadly comparable to Australia from a macroeconomic perspective' was unsupported by evidence.
33 Yet it was under the rubric of this factor that a real debate did exist. In his report Mr Seve opined that, in addition to the general economic factors, a 'key issue that is directly relevant to an analysis of this comparability factor is the relative stability of pricing structures for [the French supplier] between different markets. All other things being equal, the more consistent the pricing between economically similar markets, the more support for the use of alternative market data.'
34 This 'key' issue necessarily required an examination of the pricing arrangements of the comparables. Mr Seve thought that it was important 'that many of the [comparables] are part of global company groups that, I am informed by [the taxpayer], negotiate global pricing arrangements for multiple markets with the SNF Group'. But it was not just the comparables that needed to be examined; symmetry just as much required scrutiny of the French supplier. 'Further, [the taxpayer] has represented that the pricing structure that is generally applied by [the French supplier] between companies in different markets references a universal price list'. What was the point of this universal price list? Was it intended that it should be used to establish a universal global fixed price for polyacrylamides? The answer was no: 'As is normal commercial practice, prices can vary as a direct result of customer buying/negotiation power however putting this to one side, unless the market is structurally different to the extent that the list price is not economic, the price list is referenced as a guide to stable pricing'. What should be thoroughly grasped at the outset is that Mr Seve was at pains to accept that the prices actually paid might well fluctuate as between the comparable purchasers reflecting their respective buying strengths and individual negotiating postures. Mr Seve's point was not to suggest that these variations did not exist but, in contradistinction, to show that those admittedly existent variations could be seen as divergences within a global market. The evidence was not about the existence of a single global price but, instead, about the existence of a single global market in which price dispersions were to be expected. The comparability of the transactions was to be seen as arising, not from the fact that the prices were the same, but instead from the fact that there was a single market.
35 The taxpayer led a good deal of evidence about this. M. Pich gave evidence which assumed the existence of such a market and this was noted by the trial judge (at [138]): it was his aim for the SNF Group 'to hold 50% market share of the flocculent market globally'; 'The market share of the SNF Group globally at this time is approximately 38%'; 'The prices for purchases by [the taxpayer] from members of the SNF Group were set…always having regard to the global market for the products'. M. Pich was also cross-examined as to whether the SNF Group negotiated its prices globally. He was asked whether he was 'aware of the practice whereby SNF globally negotiates global pricing arrangements with … customers?' to which he responded '[t]here are a few cases, but they exist'. Mr Karoudjian also gave evidence that the French supplier 'generally charged each subsidiary of a single Customer the same price for a product, regardless of the location of the subsidiary and the delivery terms'. Mr Schroeter gave evidence about another multinational purchaser, Nalco, and the prices paid by it (Nalco was not one of Mr Karoudjian's five companies but was part of Mr Seve's later analysis and it is nevertheless useful at this stage to consider its role in the global market issue). Mr Schroeter's evidence was that '[t]he ex-works price charged to Nalco was consistent regardless of where they were in the world'. He gave similar evidence about the prices charged to Betz: 'Well, from the information I have seen, it was very consistent'. The product profile in European Chemical News for 21-27 February 2005 on 'Polyacrylamide' (referred to in the first paragraph of this judgment) spoke in terms of a market plainly assumed to be global: 'Global capacity for PAM stood at 910,000 tonne/year'; 'World prices have increased in 2004 by 15%, mainly due to the increased raw material costs'; 'Global demand growth is forecast at 5.4%/year to 2010'.
36 There was tendered also a number of documents which supported the notion that prices were negotiated on a worldwide rather than local basis: a price list for Ashland for various products of 15 September 1999; a letter from SNF Group to Hercules of 4 December 2002 enclosing a revised price list for anionic emulsions with the list itself being prominently headed 'Revised Global Prices' and setting out prices for various products; a similar letter to GE Betz of 26 November 2002 attaching a list of 'global prices' for powders, emulsions and solutions with the products listed in groups; another revised price list for GE Betz expressed to take effect from 1 July 2003 and setting out prices for similar products; a combined price list for Betz, Hercules and EF Houghton of 1 January 2001 setting out identical prices for a number of products and in particular fixing a price of $US0.8221 for a product called AN 923 PWG; a price list issued by the US Supplier for Ashland showing, in particular the same product being sold for US$0.77; another price list issued to GE Betz effective from 1 October 2003 showing the products grouped together (as Mr Karoudjian had done) and featuring largely similar pricing.
37 All of this evidence, detailed and particular, pointed to the existence of a global market. Standing back from the evidence that conclusion should hardly be surprising: the products in question were high volume industrial chemicals used in worldwide industries and inherently transportable. It is difficult to see how the market could not be a global one. The taxpayer also relied on extracts from annual reports for various multinational groups to make good the proposition that their operations were global too. It is unnecessary to set them out; they show, as might be expected, that the operations of these large multinationals were global.
38 The trial judge's treatment of the topic was brief. He set out the evidence in which M. Pich had spoken in terms of a global market and mentioned tangentially the existence of the global price lists: 'Whilst the evidence is unclear as to how the global price lists were referenced in terms of the pricing in different countries or geographic regions, what is clear on the evidence is the actual prices paid by the taxpayer and the customers' (at [139]). Beyond that material he did not go. His conclusion? 'All the evidence and the surrounding circumstances point to a global market' (at [140]). The Commissioner was critical of this reasoning. In his written reply he submitted that the 'other evidence' to which the trial judge referred was 'never set out or even described by his Honour. One does not know what it is'. Consequently, the Commissioner submitted that the trial judge had erred by failing adequately to set out the basis for the finding. This contention was not advanced as a ground of appeal and may be put to one side although it may be observed that it is not altogether without merit.
39 The finding that there was a global market was a pivotal part of the trial judge's reasoning process deployed elsewhere. He dismissed Dr Becker's contention that foreign companies should not be used as comparables: 'I have already indicated that the relevant market is a global market. This finding overcomes the submissions of the Commissioner which related to the comparability of foreign markets and the Australian market' (at [152]). And he dispatched any concerns that there was no evidence of comparable Chinese sales both because the prices 'were in the same range as those paid to the other suppliers' and because 'of the view I take that the acquisition of the products by the taxpayer and the customers and other purchasers occurred in the context of a global market' (at [78]).
40 The Commissioner's submission was that there was no evidence that there was a global market and that the evidence instead showed that the prices charged differed between various markets. He submitted that the evidence of M. Pich and Mr Schroeter referred to above was not evidence of a global market. But this cannot be right: plainly it was. The Commissioner submitted that the taxpayer had not established the size of the market, the manner in which it operated or the identity of its participants. But this too is simply incorrect. The evidence showed the global market was about 910,000 tonnes per year; that the largest participant was the SNF Group and that other participants were, at least, the five companies identified by Mr Karoudjian or - and it will be necessary to return to this later - the much larger number of companies identified by Mr Seve. The Commissioner submitted that the extract from the 21-27 February 2005 edition of European Chemical News from which the market size was derived had been written by a Ms Elaine Burridge and of her nothing was known: 'Moreover, the one page article, on any fair reading, does not support the existence of a global market price for polyacrylamides'. But, of course, the taxpayer was trying to establish not a global market price but a global market. Nor, where it was the Commissioner who introduced Ms Burridge's extract into evidence, is the denunciation of her expertise before this Court a submission redolent of merit particularly as it had been Dr Becker who had put the page forward on the Commissioner's behalf in the first place as a footnote in his first report. In any event, one could reasonably expect that a journal entitled European Chemical News might be written by persons not altogether unfamiliar with that topic.
41 In each of these points one may see, more importantly, a failure on the Commissioner's part to grasp the nub of Mr Seve's evidence. The suggested global market was not put forward by Mr Seve in his report to prove the existence of a universal price but as a global starting point from which negotiations might then lead to variations. The Commissioner submitted that significant aspects of the evidence suggested a substantial price dispersion from the lists. And, of course, it did. M. Pich had accepted that differences existed between the highly competitive Australian market and other markets such as Germany, Spain, Europe and the US. Mr Seve accepted, under cross-examination, that there were dispersions away from the price list and he conceded in answer to a question of whether it was not the market which set the price but 'the negotiation of the parties?' that this was '[c]orrect. Which is actually the critical point'. This led then to this question: 'So the markets are irrelevant?' to which he replied '[y]es, actually'. The Commissioner made much of this but to little effect. Comparability did not arise because the prices charged in different countries were the same; it arose because there was a single market. If Mr Seve's evidence had been that the five companies were comparable because the prices charged in each country were the same, the Commissioner's argument would have followed. But Mr Seve made no such suggestion.
42 One must reject therefore the Commissioner's written submission in reply that M. Pich's evidence fell 'far short of what is needed to prove the existence of a global market and, more significantly, the existence of a global market price'. None of the taxpayer's witnesses was trying to establish a global market price: it was not Mr Seve's evidence and it most assuredly was not M. Pich's evidence. Revealed in the submission instead is the Commissioner's failure to grasp the point being put against him; to understand the difference between comparability arising from the existence of a single market and comparability arising from an identity of price.
43 This appeal, it is true, is not concerned with a process of valuation but there are nevertheless certain parallels between the determination of arm's length consideration and the valuation of property. One of those parallels is the use, in some circumstances, of a methodology of comparables. Where, as here, that methodology is used one may utilise comparables from the same market - say the market in the eastern suburbs of Sydney for two bedroom terraces - but it would be eccentric indeed to say that a variation in the prices for such terraces ('price dispersion') signalled the non-existence of the market. We should rather take such variations to prove the existence of competitive advantages and disadvantages within the market. So here, the fact that there was price dispersion in the polyacrylamide market did not disprove the existence of that market so long as the dispersion related to competitive rather than local effects.
44 The taxpayer made this point with especial force by pointing to evidence given by Mr Seve under cross-examination. Counsel for the Commissioner asked what independent verification he had undertaken with respect to the sales data to which Mr Seve replied: 'I used the evidence of price dispersion within markets to corroborate what was told to me in relation to price dispersion not being related to geographic markets but related to individual customers or individual clients'. In that circumstance, no reason appears to interfere with the trial judge's conclusions on this matter, densely expressed although they may have been.
45 The last of Mr Seve's five comparability factors was the business strategies of the parties. Mr Seve explained that these strategies were 'generally less likely to impact a CUP analysis of this type than other comparability factors' but thought that they could be relevant ('CUP analysis' stood for comparable uncontrolled price analysis; uncontrolled denoting, in substance, independence). He instanced, as an example, the situation where a taxpayer seeks to penetrate a market or to increase its market share by agreeing 'to purchase a product for a price that leads to an unprofitable outcome for that product in order to widen its range and in so doing, provide a better service level to existing and potential customers'. Mr Seve thought data about such strategies difficult to obtain and he acted on the assumption that there were no significant strategic issues 'relevant from a comparability perspective' with respect to the five companies.
46 The trial judge did not deal with this topic at all, making no findings about it and this, it is convenient to assume, was an error on his part enlivening an obligation in this Court to consider what the correct finding about it should have been. The Commissioner submitted that the taxpayer had not led any evidence about the five companies' business strategies so that this assumption on which Mr Seve's report rested had not been made good. But why was that so? One must surely start with the assumption that the business of the five companies was conducted on an ordinary profit making basis: the taxpayer's burden of proof did not require it to tender proof positive of every fact no matter how mundane or pedestrian; no burden fell on it to prove that the comparable purchasers had been properly incorporated or, more importantly, that they did in fact carry on business. Matters of that class - the ordinary affairs of commerce, the matters of everyday regularity - could safely be assumed unless they were contradicted by evidence. Into that class of facts may be put the proposition that the proposed comparable purchasers were selling their products to make a profit. Evidence was not required from the taxpayer to prove that matter because the onus lay on those who wished to contradict it. No doubt the Commissioner could have sought to prove that, for example, Akzo Nobel NV, had engaged throughout the period in aggressive price cutting in order to obtain market share but it would be curious indeed if the taxpayer had been required, in the absence of any suggestion to that effect, to prove that it had not. Because the trial judge did not deal with this matter, it is appropriate to make the findings which should have been made: there was no reason to think that the businesses of the five companies were conducted on other than the ordinary basis of seeking to make profits from their distribution activities or that they were pursuing any out-of-the-ordinary strategy which might have affected the prices paid by them.
47 It follows that the Commissioner's contention that the first set of comparables were not sufficiently proved is incorrect and must be rejected. Those comparables were supported by direct testimony from Mr Schlag (as to all five companies), Mr Schroeter (as to two), Mr Karoudjian (as to one), M. Pich (as to all), substantial documentation in the form of annual reports, the evidence of Mr Seve as to comparability (which was admissible) and the evidence of a global market. It was, by itself, a powerful case. A similar process was undertaken by Mr Schroeter for the US supplier to that which Mr Karoudjian had undertaken for the French supplier. He used the same five companies and adjusted the prices in the same way to reflect the differing terms. Those prices were generally more than those paid to the US supplier by the taxpayer. Mr Seve did not analyse the US sales data and so expressed no view on Mr Schroeter's analysis. But that analysis used the same product groups as Mr Karoudjian's and the same process of normalizing the sales data in relation to terms of sale. The economic circumstances were the same because the market was global and there was no reason to think that the business strategies of the comparables differed. It is difficult, therefore, to see any reason why Mr Schroeter's analysis did not provide additional evidence that the taxpayer was paying less than arm's length consideration.
48 The Commissioner launched a final volley against Mr Karoudjian's and Mr Schoeter's comparables: only 112 of the 35,000 sales involved occurred in Australia; only 64 of those were direct sales; 99.68% of them occurred in other geographic markets; functional comparability was (again) not established; product group sales did not compare like with like. These points are of no substance. The first three all fail when one accepts, as one should, that foreign markets were comparable. The fourth is wrong for reasons already given. The last is inconsistent with the Commissioner's concession in this Court that the product equivalence was not in issue for Mr Seve's report. In any event, there is no reason to accept that Dr Becker's detection of price dispersion amongst the group members signified anything other than ordinary competitive effects between purchasers.