Published: 10 Nov 2015
Chevron Australia's US parent company paid income tax of only $248 last year despite earning an estimated $1.73 billion profit on interest charges to its Gorgon LNG development, documents filed with the Senate inquiry into corporate tax avoidance show.
Chevron Australia Petroleum Company, incorporated in Delaware, charged its subsidiary Chevron Australia $1.8 billion in 2014, more than 25 times the interest cost it pays to external lenders, on $36.5 billion of debt.
None of this profit appears to have been taxable in the US, with Chevron APP paying less than $US200 a year tax for the last decade, documents submitted to the tax inquiry by the International Transport Workers' Federation (ITF) show.
Chevron Australia has confirmed the Australian Tax Office is auditing its funding arrangements on the $US54 billion Greater Gorgon LNG development, after the Federal Court last month confirmed penalty assessments on an earlier tax-free funding scheme by the group.
It's believed a senior US Chevron executive will be in Australia next week to testify before the Senate tax inquiry on November 18.
Chevron's Greater Gorgon partners, ExxonMobil and Shell are also expected to appear before the Senate committee next week, as well as Uber and AirBnB.
The IWF submission also included corporate filings by Chevron companies in Singapore which show the interest rates for unsecured loans between Chevron group subsidiaries last year were between 0.17 per cent and 0.19 per cent.
During the same period Chevron APP charged Chevron Australia more than 5 per cent interest, some 25 times the rate paid by the Singapore associates.
In the Federal Court judgement on October 23, Justice Alan Robertson found that a $US2.54 billion loan to Chevron Australia from 2003 to 2008 was to "obtain a scheme benefit", with Chevron Australia paying interest of 9 per cent to a US subsidiary which raised funds at 2 per cent.
"Chevron Australia is reviewing the decision and does not intend to comment further while appeals are being considered," a Chevron spokesman told The Australian Financial Review.
"Chevron abides by a stringent code of business ethics, under which we comply with all applicable laws and regulations in the countries in which we operate."
Chevron told the AFR that from 2009 to 2040 Chevron Australia's projects would add more than $1 trillion to Australia's GDP, more than 165,000 jobs and more than $380 billion to Federal Government revenue.
In July, Chevron Australia told the Senate inquiry it had paid $5.2 billion in interest payments to US associates from 2010 to 2014, with another $1 billion paid for corporate, IT Insurance and other charges.
"The ATO is currently undertaking an audit in relation to our funding arrangement with our immediate parent for the years ended 31 December 2009 to 31 December 2013," the company said.
In May, Chevron Australia's managing director Roy Krzywosinski complained that Australia's 30 per cent corporate income tax rate was too high. US corporate tax is 35 per cent, but Chevron holds $US35 billion of untaxed profits in offshore tax havens.
The submission by IWF president Paddy Crumlin said that in addition to the ongoing Australian tax audits the US government has not approved Chevron's tax filings since 2008. Chevron is also facing audits in Nigeria going back to 2000, in Angola since 2001, Saudi Arabia since 2012 and Kazakhstan since 2007.
Mr Crumlin said a conservative estimate of the finance charges over the life of the Chevron Australia loan suggested that interest charges would surpass the $35 billion amount of the credit facility.
"Given other related party loans and Chevron's global debt ratios, it seems difficult to justify that this 'credit facility' was not specifically designed to reduce profits and tax payments in Australia," Mr Crumlin said.
Eliminating interest rate arbitrage would generate $3.2 billion in tax revenue over four years, the submission prepared by IWF senior researcher Jason Ward concluded.
Labor Party policy announced in March is to limit tax deductions on interest payments to a multinational's global debt-to-equity ratio.
Last December Chevron Australia's $36.5 billion debt was nearly twice as much debt as the entire Chevron group's debt.
When Gorgon goes into full production the value of LNG exports will be even bigger than iron ore shipments, which emphasised the need for careful scrutiny of tax arrangements, Mr Crumlin said.
"Implementing the ALP Tax Policy to cap interest rate deductions would mean that Australia could get an additional $3.2 billion in tax revenues over 4 years from the Gorgon project alone," Mr Crumlin said.
"If this Government was serious about growing the Australian resource sector and fixing the budget black hole it would shut down Chevron's tax avoidance schemes which give them an unfair advantage and strip schools and hospitals of needed funds."
Labor's global gearing model was initially proposed by the OECD's Base Erosion Profit Shifting project, though a corporate backlash has seen the OECD modify this position.
Australia's position is already broadly in line with the revised OECD recommendation.
Chevron last week flagged Australia as one of the key areas that will bear the brunt of 6000-7000 job losses flagged across its global portfolio, with its $US29 billion ($40.6 billion) Wheatstone LNG project, and the $US54 billion Gorgon venture both ue to begin production in 2016.
"The company's current income tax profile reflects where we are in our investment lifecycle," a Chevron spokesman told the AFR. "That is, the costs associated with funding the Gorgon and Wheatstone Projects, along with our significant exploration and R&D spend, has largely offset revenues generated from our existing primary sources of income.
"However, once Gorgon and Wheatstone have completed construction and are in full production, they are expected to significantly bolster government revenue over their operating lives.
"In Australia, in the past five completed financial years Chevron Australia has paid more than A$3 billion in Federal and State taxes and royalties, with income tax payments totalling approximately $430 million.
"In addition, Chevron is a significant taxpayer globally. In 2014 Chevron's worldwide income tax expense was US$11.9 billion with US$9.4 billion relating to operations outside of the US.
"In addition, Chevron's 2014 expense for taxes other than taxes on income was about US$12.5 billion. Our worldwide effective tax rate was 38.1% in 2014 and has averaged 41% in the past 5 years.
From 2009 to 2040, Chevron projects are forecast to contribute more than $1 trillion to Australia's gross domestic product, 5,000 jobs a year in Australia; and more than $338 billion to Federal Government revenue.
"Chevron Australia's direct share of this contribution to Federal Government revenue is estimated to be $65 billion in inflated-adjusted dollars," the spokesman said.
Originally published at AFR.com here.
