Australian court dismisses Chevron appeal in landmark tax case

[MELBOURNE] Chevron Corp lost an appeal on Friday against the Australian tax office in a landmark case in which the US energy giant contested a tax bill of A$340 million (S$357.3 million), including penalties and interest.

The full bench of the Federal Court dismissed the appeal against an earlier ruling that Chevron underpaid taxes by setting up a A$2.5 billion intercompany credit facility with an abnormally high interest rate which effectively lowered its taxable income within Australia.

Chevron said it was disappointed by the judgment in the case, which covers the five tax years from 2004 through 2008.

"We will review the decision to determine next steps, which may include an appeal to the High Court of Australia," a Chevron spokesman said in an emailed statement.

The case is a first test of how Australia's transfer pricing rules apply to interest paid on a cross-border related-party loan. It is being closely watched by multinational companies as governments around the world clamp down on what they deem elaborate means of reducing tax obligations.

"The economic effects of the internal financing structure put in place ... included CAHPL's (Chevron Australia Holdings Pty Ltd's) Australian taxable income being reduced by the deductions it claimed for the interest payments it made to its United States subsidiary," the court said in its latest ruling.

The Australian Taxation Office (ATO) said it was heartened by the ruling but noted Chevron could appeal to the High Court.

"This decision is significant and has 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," an ATO spokesperson said in emailed comments.

REUTERS