Chevron loses long-running battle with ATO, faces multimillion-dollar tax bill
Multinational oil giant Chevron has been hit with a tax bill of about $300 million after losing a landmark profit-shifting case that could have global implications for the way tax is assessed.
The Australian Tax Office’s case in the Federal Court case has been closely watched by the tax and business community, and will give the ATO greater confidence to challenge other multinationals about their tax affairs.
The tentacles of multinational corporations like Chevron must pay tax wherever they unfurl.–Labor senator Sam Dastyari
Labor senator Sam Dastyari
The decision comes as the ATO has another audit underway relating to a $35 billion loan that Chevron has used in relation to the Gorgon gas project.
Chevron is considering whether it will appeal the Federal Court decision. A spokesman for the company said. “Chevron does not intend to comment further while appeals are being considered,” he said.
Deloitte tax partner Geoff Gill said there was a “good chance of appeal given the complexity of the case”.
“The win for the ATO will make it feel empowered to continue to pursue transfer- pricing cases,” he said. “This case could have global implications because it is an interpretation of the arm’s length principle in the context of financing.”
The ATO was contacted after the decision, and a spokeswoman said: “We are currently considering the decision and won’t be commenting at this time.”
Labor senator Sam Dastyari, who has been outspoken about profit shifting by multinationals since the Senate inquiry into corporate tax avoidance, said: “This is good news for Australian taxpayers and the Australian tax base.”
Greens leader Richard Di Natale said: “Rather than chase these millions of dollars after they’ve been funnelled offshore, it would be so much cheaper and more efficient to force public disclosure of comprehensive financial accounts.”
Court costs could be massive
The case relates to loans between the company’s US and Australian entities between 2004 and 2008, following a merger with Texaco.
Chevron will now be forced to pay back the bill, plus penalties, which could amount up to $322 million. Other sources have said the amount could be a lower figure of about $270 million.
The company is expected to be hit with a massive bill for the ATO’s legal costs along with having to cover its own expenses. The parties have 21 days to agree to the costs bill.
Chevron itself used six barristers during the case, including two high-paid QCs while the ATO had five barristers on for its defence of Chevron’s application, including three silks.
The key issue examined during the trial was how much energy companies could charge themselves for the risk they carried when they raised US dollar loans for Australian investments.
Chevron had created a US subsidiary of its Australian company in the state of Delaware, which borrowed $2.45 billion at an initial interest rate of 1.2 per cent and then lent the money to an Australian entity at an interest rate of 9 per cent.
The court found that the interest paid by Chevron Australia Holdings Pty Ltd (CAHPL) to its US subsidiary ChevronTexaco Funding Corporation over the five-year period exceeded an “arms length price” for borrowing.
Federal Court judge Alan Robertson said the case did not relate to anti-avoidance laws nor was there any “evidence that the credit facility arrangement was a sham”. But it did relate to transfer pricing rules.
Justice Robertson said he did not accept Chevron’s claim that the tax scheme’s “dominant purpose” was to refinance its Austalian-dollar dominated debt.
He instead agreed with Tax Commissioner Chris Jordan’s submission that it was to “obtain a scheme benefit”.
He also rejected claims by Chevron that changes to transfer pricing laws under the former Labor government in 2013 were unconstitutional, even thought they can be applied retrospectively.
‘Important and significant victory’
Seantor Dastyari said: “This isn’t much different to loaning money to your cousin to avoid your own tax bill.”
“I congratulate Tax Commissioner Chris Jordan and his team for this important and significant victory. I welcome the court’s decision, and the signal that it sends to multinationals operating in Australia.”
“The tentacles of multinational corporations like Chevron must pay tax wherever they unfurl.”
International Transport Workers’ Federation president Paddy Crumlin said the multimillion-dollar fine should serve as a warning to Chevron and other corporations.
“The ATO is now examining a similar $35 billion Chevron tax scheme,” he said. “In light of this decision, this audit is now the most important the ATO has ever undertaken.”
In its submission to the Senate inquiry into corporate tax avoidance, Chevron noted it was under audit for its tax affairs between 2010 and 2014. The US government has not approved Chevron’s tax filings for over seven years.
Mr Crumlin said because LNG exports were expected to triple in the next few years, it was critical tax authorities took a closer look at the company. “Billions of dollars of tax revenue could be lost to the Australian people unless the government takes an aggressive approach to major tax minimisers like Chevron,” he said.