Corporate News Blog - Oil & Gas Major Chevron Settles with Australian Taxation Office over Disputed Tax Dues
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LONDON, UK / ACCESSWIRE / August 21, 2017 /Pro-Trader Daily takes a look at the latest corporate events and news making the headlines for Chevron Corp. (NYSE: CVX), following which we have published a free report that can be viewed by signing up at http://protraderdaily.com/optin/?symbol=CVX. The Company's Chevron Australia Holdings Pty Ltd has withdrawn its appeal against the Australian Tax Office (ATO) in Australia's High Court on August 18, 2017. Chevron Australia and ATO have been engaged in a dispute over tax dues amounting to approximately A$340 million ($268 million). For immediate access to our complimentary reports, including today's coverage, register for free now at:
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Chevron Australia's decision has allowed Australia's High Court to make a landmark court ruling on the matter of on loan transfer pricing which would have long-term impact on other multinational Companies operating in Australia. Chevron Australia has not disclosed any specific amount as the payment towards settlement with ATO.
A statement from Chevron on the matter stated:
"Chevron Australia has reached agreement with the Australian Taxation Office on the loan transfer pricing dispute and have withdrawn our appeal to the High Court. Chevron believes the agreed terms are a reasonable resolution of the matter and are not expected to have a material impact on the year to date results of the Company."
Chevron has not disclosed its reasons behind withdrawing its Appeal in Australia's High Court.
Impact of ruling on loan transfer pricing ruled in Australia
Chevron Australia's decision to withdraw its appeal in the High Court effectively solidifies the Australian Federal Court's ruling in April 2017 that stated that Chevron Australia had underpaid taxes between 2004 and 2008. It also strengthens ATO's position and efforts in bringing the case to the fore. ATO's position of strength will allow it to go after other multinational Companies in Australia who have been underpaying taxes by circumventing Australia's transfer pricing rules. As per an estimate shared by ATO, the Court's decision will allow it to recover A$10 billion in the next ten years from multinationals who have been underpaying taxes in Australia under the transfer pricing rules. ATO has not disclosed the names of any Company so far.
Commenting on the matter an ATO spokesman said:
"We have been very clear that this case would have direct implications for a number of cases the ATO is currently pursuing in relation to related party loans, as well as indirect implications for other transfer pricing cases."
The case between ATO and Chevron Australia deals with its tax dues for the tax years 2004 to 2008. The matter is with regards to the inter-company credit facility between Chevron Australia and ChevronTexaco Funding Corporation (CFC), a Delaware Company and a subsidiary of Chevron Corp. CFC was formed with the sole purpose of raising funds in US and lending the funds to Chevron Australia as inter–company credit on interest. Accordingly, Chevron Australia borrowed $2.5 billion from CFC in June 2003. As per the credit agreement between the two Companies, no assets were secured against the loan and CFC had the option of terminating the credit agreement at any time without giving any reason. The loan was used to fund development of Chevron's Gorgon liquefied natural gas (LNG) project in Western Australia.
ATO had challenged this inter-company credit arrangement. ATO's contention was that Chevron Australia's interest payments to CFC were at an unusually high rate when compared to Chevron's other sister Companies. Chevron Australia was paying 9% interest rate to CFC as compared to 1.2% that other sister Companies paid for inter-company credit. The high rate of interest paid on inter-credit loan by Chevron Australia, reduced the income of the Company in Australia, which in turn reduced the amount of tax payable in Australia.
Chevron had taken up the matter with the lower Court in Australia, saying that its interest payments to CFC complied with the transfer pricing rules in Australia. In April 2017, Chevron Australia had lost its appeal against ATO after which it had decided to appeal to the Full Federal Court of Australia. Australia's Federal Court had sided with ATO and ruled that Chevron had reduced its tax dues in Australia by resorting to a series of inter-company credit transactions and interest payments worth billions of dollars. According to ATO, Chevron's unpaid taxes in Australia amount to more than A$340 million. The Australian Federal Court had upheld that Chevron Australia had breached transfer pricing provisions of Australia's tax legislation.
In the meanwhile, ATO is also reviewing Chevron's other inter-company credit agreements and associated payments in recent years.
Last Close Stock Review
On Friday, August 18, 2017, the stock closed the trading session at $106.48, slightly up 0.53% from its previous closing price of $105.92. A total volume of 5.46 million shares have exchanged hands, which was higher than the 3-month average volume of 5.38 million shares. Chevron's stock price advanced 1.77% in the last one month and 2.83% in the previous twelve months. The stock is trading at a PE ratio of 34.54 and has a dividend yield of 4.06%. The stock currently has a market cap of $200.72 billion.
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