The ATO has issued a Decision Impact Statement on the Full Federal Court’s decision in Esso Australia Resources Pty Ltd v FCT [2012] FCAFC 5.
The Full Federal Court had unanimously overturned a decision at first instance and held that Esso Australia Resources Pty Ltd was not entitled to a deduction for contract payments made to a subsidiary for the provision of “operations and facilities in connection with a petroleum project” under ss 37 to 39 of the Petroleum Resource Rent Tax Assessment Act 1987 (PRRT Act). It also confirmed that the taxpayer was not entitled to a deduction for a contribution fee paid to a US affiliate for “mutualised research” in connection with the project. The taxpayer is currently seeking special leave to appeal to the High Court against the decision.
The ATO said many aspects of the decision are consistent with the Commissioner’s views on the operation of the deductible expenditure provisions in the PRRT Act. However, it said some of the views expressed about the inability to apportion expenditure between PRRT projects and other activities, and the treatment of payments made to contractors including the application of s 41, may be inconsistent with the Commissioner’s views or practices.
The ATO says those taxpayers that choose to lodge PRRT returns for the 2012 income year consistently with the Commissioner’s views as set out in Draft Taxation Rulings TR 2010/D4, TR 2010/D5 and TR 2010/D6 (as oppose to the views expressed by the Full Court) will continue to have protection from interest and penalties in the usual way. However, it notes that those Draft Rulings and Miscellaneous Taxation Ruling MT 93/2 will need to be reviewed “once the High Court has concluded its consideration of these matters”.
[FJM Note: s361-5 of the Taxation Administration Act, Schedule 1 gives taxpayers protection from shortfall penalty and interest penalties, where a taxpayer relies on non-ruling advice and general administrative practice.]
[LTN 147, 1/8]