Chevron Australia boss Roy Krzywosinski was complaining two weeks ago that taxes were too high in Australia.
It was a pretty suave call from Krzywosinski. The latest financial statements for Chevron Australia Holdings show the company not only managed to avoid paying tax last year but it even pulled off a refund from the Tax Office.
The Tax Office wrote the secretive oil giant a cheque for $5.7 million last year. This must be galling. The ATO is locked in a high-stakes slugfest in the courts claiming Chevron owes it $322 million in unpaid taxes.
Chevron’s operating income was $3.2 billion last year. Yet the interesting thing about these financial statements is the towering $35 billion in related-party loans from Chevron’s US parent.
The interest bill on this mega-credit facility came to $1.8 billion last year. This is typical multinational tax chicanery: load up the Australian subsidiary with costs – in this case debt – and rake out billions in interest payments to head office while claiming tax deductions on these very same interest payments from the Tax Office.
Chevron is more belligerent than its peers, though. It didn’t actually make these interest payments; it capitalised them. So, they capitalised the loan to the tune of $1.7 billion but still claimed a tax deduction for the interest expense on the loan.
But wait – like the Demtel steak knives ad – when it comes to Chevron and tax, there’s always more. As they are capitalising interest into the cost of the assets, they inflate the asset base on which they get deductions against their royalty obligations, even though this interest is purely fictional, paid as it is between related parties.
And another thing; the US dollar is the functional currency for oil majors so it is entirely unnecessary for Chevron Australia to report in $A. Unnecessary, that is, unless there is yet another tax lurk to be engineered.
We know from the parent company accounts that Chevron Inc’s net cost of debt is zero. It’s more like six per cent for Chevron Australia, however, which is just the way Chevron Inc likes it. By borrowing at 2 per cent and selling the money to your subsidiary Down Under at thrice the price, Chevron makes a glamorous turn at the expense of the Aussie taxpayer.
As reported here last month just before its local boss went public with complaints of high taxes, Chevron Corp engaged in a tax scheme between 2003 to 2008 that was so aggressive that its purpose was not merely to minimise tax but to actually make a profit from the ATO.
It created a US subsidiary of its Australian company in the state of Delaware, a tax haven, and which borrowed $2.45 billion at an initial interest rate of 1.2 per cent and then lent the funds to an Australian entity at an interest rate of 9 per cent.
The interest on the loan was used to finance the distribution of capital created out of a revaluation of assets.
The continuing Tax Office case against Chevron is confined to allegations of transfer pricing. However, a report obtained by Fairfax Media into Chevron’s tax affairs describes the arrangements as a “sham” whose purpose is to dodge tax rather than achieve a commercial end.
When Krzywosinski told the APPEA oil industry conference in Melbourne two weeks ago that taxes and wages were too high in this country, it was hardly a surprise. The taxes and wages shtick is done to death by the business lobby.
It is hardly credible advice, however, seeing as Chevron doesn’t pay its fair share of tax in Australia any way and has the cheek to further expend Australian taxpayers’ resources by fighting the Tax Office in the courts instead of simply paying what has been asked.
Let’s not forget they would also claim tax deductions for their millions spent in legal fees fighting the ATO; that’s besides their tax refund last year on top of their $3.2 billion in income. Then there is the fact that their taxable profit number is as good as meaningless any way as the rip so much out to the US via overpriced loans from themselves.
If operators like Chevron, Glencore, News Corp and the likes paid their fair share, the corporate tax rate in the country could be reduced from 30 per cent to 20 per cent. The government should respond to Chevron’s free advice with some free advice of its own – stop whingeing, stop pettifogging in the courts and pay your damn tax!