The taxpayer has discontinued its application for special leave to appeal to the High Court from the Full Federal Court decision in Chevron Australia Holdings Pty Ltd v FCT  FCAFC 62.
This was a transfer pricing dispute where the ATO had issued amended assessments under Div 13 of the ITAA 1936 (the old transfer pricing provisions) and under Div 815-A of the ITAA 1997 (the retrospective part of the new provisions.
The Full Federal Court decision, which now stands, had unanimously dismissed the taxpayer’s appeal and affirmed the ATO’s amended assessments which denied the taxpayer deductions for some of the interest expense paid to its US subsidiary on the basis that the interest paid by the taxpayer was excessive. The litigation revolved around draw-downs under a Credit Facility Agreement entered into on 6 June 2003 between Chevron Texaco Funding Corporation (CFC, a US company) and the taxpayer, Chevron Australia Holdings Pty Ltd (CAHPL, CFC’s parent and an Australian resident, owned ultimately by Chevron Corporation (CVX or Chevron)). CAHPL borrowed the equivalent in AUD of US$2.5 billion from CFC. The funds were used to refinance external AUD-denominated debt that had been taken on to fund CAHPL’s acquisition of various operating entities.
The most dramatic part of the decision was that, to get arm’s length terms, you don’t take the peculiarities of non-arm’s length borrowings (e.g. lack of security and currency exchange exposure) and then find a price to justify those unusual terms. Rather, the analysis revolves around all terms of the loan being arm’s length, so the interest rate doesn’t have to be so high.
The Minister: Kelly O’Dwyer welcomed Chevron withdrawing its appeal and thus finalising the matter with the Full Federal Court’s finding in favour of the Commissioner – saying it could bring in an additional $10b over 10 years.