By Robb M. Stewart
MELBOURNE, Australia--Chevron Corp. (CVX) will launch a fresh appeal in a roughly $250 million tax dispute tax dispute with Australia's tax office, taking its case to the High Court.
Last month, the U.S. energy company lost an appeal in Australia's federal court, which upheld an earlier judgement it owed about 340 million Australian dollars (US$252.2 million) in taxes, interest and penalties on a loan to its Australian arm from a related company.
The landmark ruling was the first to reach an Australian court that tested the application of transfer-pricing rules on interest paid on cross-border inter-company loans, and has implications for a number of other cases the Australian Taxation Office is pursuing.
Chevron on Friday said it had elected to seek special leave to appeal to the High Court on the financing dispute with the tax office.
"As recognized by the federal court, Chevron Australia's financing is a legitimate business arrangement and the parties differ only in their assessments of the appropriate interest rate to apply," a spokesman for Chevron's Australian business said.
The tax office, which had welcomed April's decision by a full bench of the federal court, had also acknowledged Chevron had the opportunity to apply to the High Court.
At issue in the case was whether a loan to Chevron's Australian business was deemed arm's length. The tax office's transfer-pricing rules were designed to ensure multinational companies don't obtain a tax benefit from mispricing loans to their Australian businesses.
The ATO claimed that Chevron Australia Holdings Pty. Ltd. underpaid taxes for the 2004-2008 fiscal years by deducting interest payments on a US$2.5 billion loan it received from Chevron Texaco Funding Corp., a subsidiary set up in the U.S. by the Australian business.
According to the appeal ruling, Chevron Texaco Funding was set up to lend at about 9% interest from money it raised by issuing commercial paper in the U.S. at a rate of about 1.2%.
In the decision, Judge James Allsop said the interest payments created a tax deduction for the Australian arm of Chevron against revenue from its stake in the North West Shelf natural-gas project in Western Australia. The interest, as income in the hands of Chevron Texaco Funding, wasn't taxed in Australia or the U.S., he said.
Chevron Australia said it pays a substantial amount of tax in Australia, including royalties, payroll tax, excise and other imposts. Since 2009, it has paid about A$4.5 billion in federal and state tax, the company said.
Chevron Australia also said its Gorgon and Wheatstone gas-export operations are expected to make a significant contribution to the economy when they are in full production.
Write to Robb M. Stewart at [email protected]