Deconstructing the Chevron Transfer Pricing Case
The Federal Court issued its much anticipated decision in Chevron Australia Holdings Pty Ltd v Commissioner of Taxation
The Federal Court issued its much anticipated decision in Chevron Australia Holdings Pty Ltd v Commissioner of Taxation ( FCA 1092) on 23 October 2015. Robertson J upheld transfer pricing assessments against Chevron Australia Holdings Pty Ltd (CAHPL) related to interest payments made to its US subsidiary, Chevron Texaco Funding Corporation (CFC), under an intercompany loan arrangement.
CFC lent CAHPL the AUD equivalent of USD2.5 billion on an unsecured basis at an interest rate of AUD LIBOR plus 4.14% under a Credit Facility agreement entered into in June 2003 with a maturity date of 30 June 2008. CFC had raised the funds at rates of interest at or below USD LIBOR (approximately 1 to 2%) through an issuance of USD commercial paper with a credit guarantee provided by Chevron Inc, the ultimate parent of the group.
The Court held that CAHPL had not shown that the interest paid under the Credit Facility Agreement was equal to or less than arm’s length. CAHPL therefore did not prove that the amended assessments imposed by the Commissioner under Division 13 were excessive.
The case was extremely complex involving multiple facets of tax law and was heard over some 21 court days making it one of the lengthiest tax cases heard in Australia. The case involved more than 20 witnesses and experts (from corporate banking, rating agencies, academia, oil and gas industry and transfer pricing specialists).