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Chevron Folds In Landmark Australia Tax Lawsuit

CVX

Chevron has settled with the Australian Tax Office in a lawsuit seeking penalties against the oil major for tax evasion. The size of the settlement has not been officially disclosed but media reporting on the news estimate it could be over US$790 million (A$1 billion). As a result, the supermajor dropped an appeal against the ATO at Australia’s Supreme Court.

The settlement is a landmark for the Australian tax authority, which now expects further budget revenues to the tune of US$7.9 billion (A$10 billion) over the next ten years from other resource companies active in the country and using tax avoidance mechanisms similar to the one Chevron used to cut its tax bill by some US$269 million (A$340 million) between 2004 and 2008.

Earlier this year, The Federal Court of Australia found Chevron responsible for shifting profits from Australia to the U.S. using an intra-company loan mechanism. This was the second ruling on the case and it upheld an identical one issued by the Australian Tax Office, which Chevron appealed at the federal court.

The verdict, media noted at the time, may be a harbinger for other big businesses in Australia who use intra-company loans as a way to lessen their tax burden.

Related: Oil Rises, But Saudis Face Daunting Dilemma

Now the tax authority has confirmed it will target other companies as well. Australian Financial Services Minister Kelly O’Dwyer said, as quoted by the Sidney Morning Herald: "The ATO's initial estimates are that the Chevron decision will bring in more than $10 billion dollars of additional revenue over the next 10 years in relation to transfer pricing of related party financing alone."

The mechanism that the company used consisted of setting up a new U.S-based entity that borrowed US$2.5 billion at 1.2 percent interest and then lent the money to the Australian unit of Chevron at an interest rate of 9 percent. The interest payments were then claimed as deductions in Australia.

By Irina Slav for Oilprice.com

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