RSM Australia

Chevron Australia’s transfer pricing fight to go (at least) another round

Tax Insights

Chevron Australia has lodged the necessary paperwork with the Australian High Court registry, to apply for special leave to appeal against the Full Federal Court’s decision, in the long running and ground breaking transfer pricing litigation.


The special leave application was lodged on Friday 19 May 2017, the last day possible.



What happens next?


Under the Australian appellate hierarchy, the Full Federal Court is generally the ultimate decision maker in taxation cases. However, in cases of significance or public interest, the High Court may also hear an appeal from a decision of the Full Federal Court. There is no ‘as of right’ appeal from the Full Federal Court.


This process involves two steps – first, an applicant must make a special leave application, and demonstrate that the matter is of sufficient significance or in the public interest, for it to be heard by the High Court. A special leave application is typically heard by one or two High Court judges.


If leave is granted, the matter will then be set down for a full hearing of the legal arguments – only questions of law (not fact) can be argued.


If special leave is refused, that is the end of the matter and the Full Federal Court decision stands.


So, the Chevron transfer pricing saga will continue for at least one more round, and maybe two.


History of the litigation: the story so far


Chevron and the Australian Tax Office are engaged in a transfer pricing dispute about the rate of interest paid by Chevron Australia on a related party loan of some US$2.5 bn. (This litigation covers the income years 2004 to 2008.) Chevron lost in the first instance, and again on appeal to the Full Federal Court. The scoreboard is currently 4-0 (in judicial terms).


For a summary of the Full Federal Court decision, click here.


Comments on the case


In the countdown to last Friday’s deadline, there was much speculation as to whether Chevron would, or would not, go again. (That has now been resolved.)


While the current dispute centres on a very large loan (US$2.5 bn), and the tax in dispute is also significant (some $A 340 million), the related party advances made after 2008 to fund the construction of Chevron’s Australian northwest LNG facilities, dwarf the initial US$2.5 bn loan. The quantum of tax in dispute will be similarly eye watering.


As a public company, and with so much tax at stake, it seemed likely that governance would require Chevron to try to get in front of the High Court. And of course, Chevron is interested only in its own loan balances, and the related tax consequences.


But from the perspective of the Australian economy as a whole, particularly given the magnitude of the recent resources investment boom, the potential underpaid tax liabilities must be significant, without even considering additional penalties and interest charges.


One source has suggested that multinational loan balances inbound to Australia in excess of US$400 bn could be affected by this decision. If the ATO is successful, the related tax will make a big contribution to reducing Australia’s current fiscal deficit, but at the potential cost of future commercial investment into Australia.


Added to the issue of magnitude are arguments that the Australian Federal Court judgements have not correctly applied the ‘agreed’ international guidance on the issues in dispute. Global alignment on taxation issues is, after all the objective of the G20/OECD BEPS project that has been running over the last five years, and it is argued, Australian court decisions should apply that ‘agreed’ guidance.


With these thoughts in mind, there must be a reasonable chance that the High Court will grant special leave and hear the substantive appeal.



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If you would like to know more about this article, please contact Craig Cooper at [email protected].

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