21/04/2017 - 11:01

Chevron loses $340m tax appeal

21/04/2017 - 11:01

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Chevron Australia has lost its appeal of a 2015 Federal Court ruling regarding the company’s financial and taxation relationship with its US parent, although the company has not ruled out a High Court appeal.

Chevron loses $340m tax appeal
Chevron's Gorgon project began shipping LNG from its third and final train in recent months.

Chevron Australia has lost its appeal of a 2015 Federal Court ruling regarding the company’s financial and taxation relationship with its US parent, although the company has not ruled out a High Court appeal.

The dispute is over a credit facility created in 2003, which gave the Australian Chevron subsidiary around $2.5 billion of loans.

The subsidiary was charged a higher interest rate on those loans than the parent company, which had itself borrowed the money in the US.

That led the Australian Taxation Office to pursue legal action against Chevron, effectively claiming that the taxation structure had been too aggressive, a view that was confirmed by the trial judge in 2015.

However, the trial judge, and today the full bench of the Federal Court, said the case rested on the question of whether the level of interest paid had been decided in an arm’s length arrangement.

The ATO did not take the action under anti-avoidance provisions.

Chevron, which has invested billions in Western Australia in the past decade through the Gorgon and Wheatstone projects, is understood to have a total exposure of $340 million after the decision.

That includes interest, taxes and penalties.

A Chevron spokesperson said the company was disappointed with the decision, and would review it to determine its next step, including a possible High Court appeal.

“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 spokesperson said.

Chevron Australia pays a substantial amount of tax in Australia, including royalties, payroll tax, fringe benefits tax, excise and interest withholding tax.  

“Since 2009, we’ve paid almost $4 billion in federal and state taxes and royalties.

“We are one of Australia’s largest investors and employers.

“In addition to tax payments, Chevron will continue to deliver substantial economic benefits for decades to come.”

One international tax adviser told Business News the ruling would likely lead the ATO to more aggressively pursue similar arrangements, and recommended companies that may be effected review their arrangements as soon as possible.

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