Chevron Settlement Could Mean $8B in Extra Tax for Australia

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By Murray Griffin and Ben Stupples

Australia’s tax authority is eyeing at least A$10 billion ($7.9 billion) in extra receipts from companies after reaching a settlement with Chevron Corp.’s Australian unit on a landmark dispute.

The Australian Taxation Office estimates that a court ruling against Chevron’s group financing will “bring in more than $10 billion dollars” from similar business activity in the next decade, Australia’s revenue and financial services minister Kelly O’Dwyer said in an Aug. 18 statement.

The comments come after Chevron Australia withdrew its application to appeal the April 2017 ruling from the Federal Court of Australia, the country’s second-highest court. In an Aug. 18 statement, a Chevron Australia spokesman said the company has reached “reasonable resolution” with the ATO.

Indicated by the ATO’s revenue estimates, the case will allow the tax authority to target companies with similar arrangements to Chevron. Discussions with a number of taxpayers are “already underway,” an ATO spokesperson told Bloomberg BNA in an Aug. 18 email.

Chevron’s settlement is “a significant win for the Australian community,” O’Dwyer added.

‘Significant’ Untaxed Profits

In the case, the ATO challenged a $2.5 billion intra-company loan that Chevron Australia Holdings Pty. Ltd. received in 2003 to finance a local gas export project, seeking a total of A$340 million.

The loan to Chevron’s Australian unit should have been made on the same basis as a similar transaction involving independent companies, otherwise known as the arm’s-length principle, under transfer pricing rules that aim to ensure cross-border transactions are priced on a fair basis.

Yet by borrowing at a local rate with just 1.2 percent interest and lending to the Australian unit at 9 percent, a U.S.-based subsidiary of the Australian unit benefited from Chevron’s group credit rating and subsequently received “significant” untaxed profits, according to the April 21 court ruling.

The ATO’s revenue estimates are in line with figures, identifying similar cases worth A$1 billion a year, that Chevron cited in its application to appeal the April 2017 ruling. The company revealed its decision to seek an appeal in a May 19 online statement that has since been removed.

Niv Tadmore, a Melbourne-based partner and tax lawyer at law firm Clayton Utz, responded to the settlement of Chevron’s dispute with the ATO by warning of more cases in the future.

“It is important to note that this decision is about the old transfer pricing regimes,” he told Bloomberg BNA Aug. 18 by email. “I would say that it is just a matter of time before the High Court is asked to consider the new regime,” which came into effect in 2013, he added.

One of the largest U.S. oil producers, Chevron is one of Australia’s largest resources investors, mainly due to an $88 billion spending spree on its Gorgon and Wheatstone LNG developments in Western Australia. It also holds a 16 percent stake in the state’s North West Shelf project, which started shipping liquefied natural gas in 1989.

To contact the reporter on this story: Benjamin Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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