Chevron Loses Court Appeal of Australia Tax Bill
April 21 2017 - 4:48AM
Dow Jones News
By Robb M. Stewart
MELBOURNE, Australia--Chevron Corp. (CVX) lost an appeal of an
Australian tax bill of more than 300 million Australian dollars
(US$226 million) in what could be a landmark case for the country's
tax office.
A full bench of the federal court backed a 2015 court ruling in
favor of the Australian Taxation Office, which claimed the energy
company owed taxes on a loan from a related company, mainly because
the terms allowed the company to cut its tax bill through
deductions on an unreasonably high interest rate charged by an
associated company in the U.S.
The unanimous decision, handed down Friday, dismissed the appeal
with costs.
The case is the first to reach an Australian court that tests
the application of the tax office's transfer-pricing rules on
interest paid on cross-border related-party loans. In an emailed
reply to questions, the ATO said the decision is significant and
has direct implications for a number of cases it is pursuing.
"We are heartened by the outcome, although note that the
taxpayer has the opportunity to apply for special leave to apply to
the High Court," the ATO said.
Chevron plans to review the decision to determine its next
steps, which might include an appeal, a spokesman said.
"As recognized 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," he
said, adding that since 2009 Chevron Australia has paid almost US$4
billion in federal and state taxes and royalties.
At issue in the case was whether a loan to Chevron's Australian
arm was deemed arms length. The tax office's transfer-pricing rules
were designed to ensure multinationals don't obtain a tax benefit
from mispricing loans to their Australian businesses.
The ATO claimed that Chevron Australia Holdings Pty. underpaid
taxes by about A$340 million, including penalties and interest for
the 2004-2008 fiscal years by deducting interest payments on a
US$2.5 billion loan it received from Chevron Texaco Funding
Corp.
According to the appeal ruling, Chevron Texaco Funding was set
up in the U.S. to lend funds to its Australian parent at about 9%
interest from money it raised by issuing commercial paper in the
U.S. at a rate of about 1.2%.
In Friday's ruling, Judge James Allsop said the interest
payments created a tax deduction for the Australian arm of Chevron
against revenue from its stake in the North West Shelf natural-gas
project in Western Australia. The interest, as income in the hands
of Chevron Texaco Funding, wasn't taxed in Australia or the U.S.,
he said.
Given Chevron's policy on external funding and a willingness to
provide a guarantee, "there would have been a borrowing cost
conformable with Chevron's AA rating, which, on the evidence, would
have been significantly below 9%," the judge said.
In the findings, he said he agreed with the trial judge that the
US$2.5 billion debt was chosen "because it was the most tax
efficient corporate capital structure and gave the best after tax
result for the Chevron group."
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
April 21, 2017 04:33 ET (08:33 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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