Chevron faces $322m tax bill
Oil and gas giant Chevron faces a massive tax bill after losing a long-running battle with the tax office over allegations the company used internal lending to reduce its Australian taxes.
The Federal Court this morning ruled against Chevron in a landmark legal case that had argued the US multinational was shifting profits offshore through transfer pricing — minimising its profits in Australia through the use of more than $US2.5 billion worth of loans between its US and Australian business arms.
Gorgon LNG developer Chevron is likely to appeal the decision.
However, if the court decision stands, Chevron will be forced to pay an estimated $322 million in back-taxes and penalty payments.
Justice Alan Robertson noted in his decision, released this morning, there was no allegation before the court the inter-company lending was a “sham” transaction, but found the complex lending arrangements breached transfer pricing rules.
At the heart of the case was an argument about how much the two Chevron subsidiaries could charge in interest on the loans, with the US-based company having initially borrowed the money at an interest of about 1.2 per cent, and then collected at a rate of 9 per cent from its Australian cousin.
Chevron had argued the interest rate hike was a reflection of the risk involved in raising US dollar loans for Australian investments, but the Federal Court disallowed the deductions and ordered the company to pay up.
Justice Robertson also ruled against a separate argument from Chevron that the relevant section of the tax rules were unconstitutional.
The decision has been highly anticipated by other multi-national companies operating in Australia, and will likely encourage the tax office to pursue further high-profile transfer pricing cases.
A Chevron spokesman said it was considering its options.
“The Federal Court today handed down its decision on the appeal by Chevron Australia of interest deductions disallowed by the ATO for (2003 to 2007) tax years,” he said.
“The Federal Court disallowed Chevron Australia’s appeal and Chevron Australia is considering the decision and its position with regard to any appeals.
“Appeals to the Full Federal Court must be filed within 21 days of orders issued by the Court with respect to the decision. Chevron does not intend to comment further while appeals are being considered.”
The international transport union’s federation ITF, which is in battle with Chevron over work practices on the Gorgon project, welcomed today’s Federal Court decision.
ITF president Paddy Crumlin said Chevron needed to come clean and pay its fair share of taxes.
“This demonstrates the complete disregard Chevron has for Australia and the lengths it will go to avoid its obligations,” Mr Crumlin said.
“The scheme rejected today was for $2.5 billion in high interest related party debt.
“The ATO is now examining a similar $35 billion Chevron tax scheme. In light of this decision this audit is now the most important the ATO has ever undertaken.
“With LNG exports expected to triple in the next few years it is critical that tax authorities and governments take a very close look at how Chevron structures its’ tax arrangements.
“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.”
