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Detailed discussion of the facts

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Australia wins gold in the international transfer pricing games

The facts

Chevron Australia Holdings Pty Ltd (CAHPL), an Australian company, borrowed $US 2.5bn from its US resident subsidiary, Chevron Texaco Funding Corporation (CFC). This was an internal group borrowing, with interest payable by CAHPL at around 9% pa. CFC had borrowed the money on the US commercial paper market (an external borrowing) paying interest of about 1.2%.

Figure 1 below provides a diagrammatical representation of the transaction flows.

Figure 1: Flow of transactions between CAHPL, CFC and Chevron US



The parties involved

  • Chevron Australia Holdings Pty Ltd (‘CAHPL’) (Borrower) is a wholly owned subsidiary of the US-based Chevron Corporation (‘Chevron US’) (Parent); and
  • Chevron Texaco Funding Corporation (‘CFC’) (Lender), a special purpose financing subsidiary established to raise funds in US bond markets (with the benefit of a guarantee from the Parent).

The arrangement

  • The cost of funds to CFC was less than US LIBOR (approximately 1-2%).
  • A Credit Facility Agreement (the Facility) was entered into in June 2003 between CAHPL and CFC
  • The facility between CAHPL and CFC was set out as follows:
    • the Borrower borrowed the AUD equivalent of US $2.5bn;
    • interest at 1m AUD LIBOR + 4.14% p.a (approximately 9%);
    • loan repayable in full after five years,
    • not subject to financial covenants and no guarantee or security was provided by or on behalf of the Borrower
  • Dividends were paid annually by CFC to CAHPL.

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