Alcoa’s $1B tax win over Australia: A big save for the global business in a volatile time

In a blow to Australia’s aggressive multinational tax crackdown, the Australian Taxation Office (ATO) has abandoned its six-year-long legal fight with Alcoa over alleged transfer pricing abuses, marking a rare high-stakes defeat for Canberra in its broader battle against US corporate giants. With Alcoa now set to receive USD 107 million in tax refunds, the decision has reverberated through both the aluminium sector and the global tax justice landscape.

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But beneath the surface of a billion-dollar ruling lies a deeper narrative, one that cuts across resource nationalism, transfer pricing frameworks, and a geopolitical tug-of-war over who gets to tax global profits in the age of cross-border supply chains.

The dispute and what was at stake

At the heart of the case was an accusation of profit shifting. The ATO alleged that Alcoa of Australia sold alumina, a semi-processed aluminium input, at artificially low prices to related parties in Bahrain, where Alcoa operates a smelter in a joint venture with the government.

The Australian Taxation Office (ATO) claimed that Alcoa of Australia Limited (AoA) owed approximately AUD 214 million in back taxes, plus AUD 707 million in interest, totalling around AUD 921 million. This dispute stemmed from the ATO’s assertion that AoA underpriced alumina sales to Aluminium Bahrain B.S.C. (Alba) between 1993 and 2009, thereby reducing its taxable income in Australia.

In line with the ATO’s dispute resolution practices, AoA paid 50 per cent of the assessed income tax amount, approximately AUD 107 million, in the third quarter of 2020. This payment was recorded as a noncurrent prepaid tax asset, as AoA continued to contest the ATO’s position.

The premise: selling alumina below market rates to related entities effectively shifted taxable profits out of Australia into lower-tax jurisdictions or corporate structures with greater flexibility. The ATO claimed that this practice, going back two decades, violated the arm’s length principle, a cornerstone of global tax law which mandates that transactions between related entities must be priced as if they were between independent parties.