Chevron surrenders in $1B tax fight with ATO

This story was originally published in The West Australian on 19 August 2017 with the headline "Chevron folds in $1b tax case." © Peter Milne.

Chevron has surrendered in its $1 billion fight over interest charged on inter-company loans, leaving an emboldened Australian Taxation Office ready to tackle more multinationals for a predicted $10 billion haul.

The US oil and gas giant said yesterday it had abandoned its appeal to the High Court against a Full Federal Court decision in favour of the ATO, and had reached an agreement with the ATO in the dispute.

“Chevron believes the agreed terms are a reasonable resolution of the matter,” a company spokesman said.

The total amount in dispute was $1.062 billion, according to an answer by Chevron to a question from the Senate committee on corporate tax avoidance in May.

Federal Minister for Revenue and Financial Services Kelly O’Dwyer said the ATO’s initial estimate was that the court’s ruling would reap more than $10 billion over the next decade in relation to pricing of intercompany loans alone. Chevron’s settlement of the dispute is in contrast to its initial reaction to the Full Federal Court decision.

Chief financial officer Pat Yarrington said in May Chevron was hugely disappointed at the ruling, and the Australian court had failed to follow recognised international transfer pricing guidelines.

“There's an awful lot at stake with this ruling, not just for Chevron but for any inter-company lending in Australia,” she said at the time.

The ATO agreed. A spokesman said the impact would be across the entire economy, not just the oil and gas sector.

The ATO spokesman said the case would have direct implications for related party loans cases it was pursuing and indirect implications for other transfer pricing cases.

“The judgment in Chevron is one of the most important decisions in corporate tax in Australia,” he said.

“The ATO will not shy away from lengthy or complex cases. We have the laws, the powers and the capability to hold these multinational companies to account.”

BDO accounting global lead transfer pricing Zara Ritchie said some positions the ATO was taking were not consistent with international practice.

“Everyone was expecting and hoping it would go to the High Court,” she said of the case.

KPMG national leader tax dispute resolution Angela Wood said KPMG had seen many multinationals scrutinising their existing inter-company loan arrangements for compliance with the ruling.