Academic journal article Business Law International

The Landmark Chevron Transfer Pricing Decision in Australia

Academic journal article Business Law International

The Landmark Chevron Transfer Pricing Decision in Australia

Article excerpt


In December 2017, the Australian financial press reported that the Australian Taxation Office (ATO) had sealed deals with 12 of its biggest multinational targets in Australia on related-party debt, which would settle tax cases relating to AU$75bn of intra-group cross-border borrowings. The press coverage of this announcement quoted a Deputy Commissioner of the ATO in relation to the landmark Full Federal Court decision in April 2017 where the ATO had a win against Chevron's Australian arm over multi-billion dollar borrowings from offshore associates, which were used to fund the company's share of the Gorgon and Wheatstone oil and gas projects off the North West Shelf of Australia. According to the ATO, the Chevron decision had been 'very useful' in bringing big multinational companies to the negotiating table.

On 18 December 2017, the ATO issued Practical Compliance Guideline PCG 2017/4 setting out the ATO compliance approach to taxation issues associated with cross-border related-party financing arrangements. The Chevron case was significant in supporting the views expressed in PCG 2017/4.

The writer of this article was the instructing solicitor for the Commissioner in the Chevron litigation. It is the first time that the ATO has won a material transfer pricing dispute in the Federal Court of Australia.

The Chevron litigation

The Chevron transfer pricing case was the first major transfer pricing case on pricing intra-group cross-border financing. Before this, there was no Australian precedent or, indeed, any material international precedent in relation to certain fundamental issues associated with transfer pricing and debt financing.

The case was a large one in terms of the amount of tax in dispute, the hearing time and the number of experts involved.

At first instance in the Federal Court, Justice Robertson found for the Commissioner in October 2015. On appeal, the Full Federal Court (Allsop CJ, Pagone J and Perram J) also found for the Commissioner in April 2017. Chevron settled the litigation and post-litigation years with the Commissioner and as part of that settlement it discontinued its special leave appeal to the High Court. So the Full Federal Court decision will stand as the final authority.

The Chevron decision tested transfer pricing law that existed in two now-repealed provisions of the Australian legislation, being Division 13 and Subdivision 815-A.

This article will provide an overview of the Full Federal Court's reasoning in respect of two key substantive issues - first, the extent to which the actual transaction may be recharacterised as being on different terms; and second, the attributes of the hypothetical independent parties on which the hypothesis of arm's-length consideration is to be assessed and the meaning of independent parties dealing wholly independently with one another. Other issues that arose in the Chevron case will not be covered in this article.

To provide context, a brief explanation of the facts is set out below.


Chevron Corporation (CVX) in the United States wholly owned Chevron Australia Holdings Pty Limited (CAHPL) in Australia. CAHPL in turn wholly owned a US subsidiary, Chevron Funding Corporation (CFC), which was used by CAHPL and CVX to access the US commercial paper (CP) market.

In mid-2003, CFC borrowed US$2.45bn through a US commercial paper programme at rates of interest at or below US$ London Inter-bank Offered Rate (LIBOR) (ie, about 1.2 per cent at the time). This rate was available to CFC as the US CP programme was supported by a guarantee from CVX that allowed CFC to benefit from CVX's AA rating.

The US$ raised under the CP programme by CFC were transferred to a US$ account of CAHPL and used by the Chevron group to pay dividends and to discharge external debt.

That movement of cash was documented as a loan facility that was entered into between CFC and CAHPL pursuant to which CFC agreed to advance the Australian dollar equivalent of US$2. …

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