Shell in big win against ATO

Shell has largely won a federal court battle in a long running dispute with the Australian Taxation Office over its $2.3 billion purchase of Browse LNG assets from Chevron.

The ATO had disallowed tax deductions for Shell’s acquisition of a series of petroleum titles at Browse in August 2012.

That was on the basis that the tenements had to be used for exploration or production at the time of the deduction.

The Browse fields are still yet to enter production, after decades of delays, including following low oil prices and disputes over land use in the Kimberley.

But the venture partners, led by Woodside, have made numerous attempts to make the project add up.

Shell’s 2012 deal lifted its share in the West Browse fields from 15 per cent to 35 per cent, and in East Browse from 8.3 per cent to 25 per cent.

Federal Court justice Craig Colvin today said Shell had largely applied the deductions correctly.

“The (permits and licenses) were depreciating assets because each was a mining, prospecting or quarrying right, specifically because each... asset was an interest in the statutory titles which conferred a right to explore for petroleum,” Justice Colvin said.

“After Shell held the additional proportional interest in each of the statutory titles in early November 2012, the additional proportional interest in the statutory title for area A (being WA-28-R) was first used for exploration in 2012. 

“Therefore, the decline in value that may be claimed by Shell in 2012 for its additional proportional interest in WA-28-R is the cost of that intangible asset.

“In 2014, each of Shell's additional proportional interest in the other intangible assets in the other Statutory Titles (save for WA-275-P, an exploration permit) was first used to explore for petroleum. 

“Therefore, the decline in value that may be claimed in 2014 by Shell for each of those intangible assets is the asset's cost.”

It comes after years of debate about tax payments by the oil and gas industry.

That has included the Petroleum Resource Rent Tax review and discussions about capital expenditure deductions.

Chevron lost a $300 million transfer pricing case in 2017.