CANBERRA: The Australian Taxation Office has notched up a far-reaching victory in its fight against multinationals not paying their fair share of tax, winning a landmark court battle against Chevron.
After losing a Federal Court appeal yesterday, the US oil and gas heavyweight will have to pay more than $300 million in taxes, penalties and costs.
The case centered on the nation’s transfer pricing rules, which govern internal transactions within a company.
The unanimous ruling by the full bench of the Federal Court has ramifications for multinationals, many of them in the oil and gas sector, which seek billions of dollars in internal loans, to fund their Australian operations.
It is also likely to have an impact on Chevron’s $60 billion Gorgon project, which has been funded by inter-company lending.
It comes as the taxman looks to claw back $2.9 billion from seven of the world’s biggest companies, including mining majors BHP Billiton and Rio Tinto and tech titans Google, Apple and Microsoft.
The Australian Taxation Office said the Chevron victory had “direct implications for a number of cases the ATO is currently pursuing in relation to related-party loans, as well as indirect implications for other transfer pricing cases”.
Greenwoods & Herbert Smith Freehills managing director Tony Frost said it was the most significant tax case decision in Australian corporate history.
“This is a very big deal,” Mr Frost said. “It’s the first Australian case and one of the very few in the world to deal with the application of transfer pricing rules and cross border debt.”
The Chevron ruling, which the oil and gas group can still challenge in the High Court, centred on $US2.5 billion in internal lending between its US and Australian operations.
Chevron’s US arm paid about 1.2 percent to raise the money from international financiers but on-lent it to its Australian operation at about 9 percent. The inflated interest rate swelled Chevron’s local expenses and allowed it to reduce its tax bill in Australia.
Chevron said it was “disappointed” by the decision and might decide to launch a High Court appeal after reviewing it in full.
“As recognised by the trial court in the dispute, the financing is a legitimate business arrangement and the parties differ only in their assessments of the appropriate interest rate to apply,” the company said. Chevron said it had paid almost $4 billion in federal and state taxes and royalties since 2009.
