Chevron’s top brass touched down in Australia last September in a fleet of five private jets, here to visit their gargantuan Gorgon and Wheatstone gas projects in Western Australia.
The Tax Office might have slapped them with a Departure Prevention Order (DPO) and told them they couldn’t leave the country until Chevron paid its tax.
That’s precisely what the Australian Tax Office did when Indian billionaires Pankaj and Radhika Oswal arrived in Sydney five months earlier to fight their court action against the ANZ over the collapse of their company Burrup Fertilizers.
The Oswals, despite having children overseas, were detained indefinitely. A few months later they had settled with ANZ for a rumoured $200 million. They also settled with the Tax Office. That’s over now.
Had the Tax Office done the same with the board of Chevron, hit them with a DPO, it would have sent a powerful message to multinational tax avoiders; pay your tax or we will deploy the full extent of the law to pursue you.
The ATO has been locked in a massive court case with Chevron for years. Despite losing the original case in the Federal Court, where the judge found Chevron owed $300 million, Chevron appealed.
On Friday, the oil and gas giant lost again, this time before the full bench of the Federal Court. It was an historic court victory, the appeal was dismissed with costs; an absolute ripper for the ATO and one which will put the frighteners on the other tax-avoiding oil majors, Shell, BP and Exxon.
Chevron, however, is likely to appeal to the High Court, chewing up more Tax Office time and money. This case, which cost taxpayers at least $10 million, related to a loan of $US2.5 billion which Chevron borrowed in the US then lent to its Australian subsidiary.
It had borrowed in the US at just 1.2 per cent but on-lent the money at 9 per cent – a massive mark-up which delivered a $1.1 billion profit.
The sham was exposed in 2015 (story above), a transaction where the oil major actually made a profit from the ATO, but there is more to come. Last week’s $340 million judgement against Chevron in favour of the Tax Office concerned a loan of just $3 billion.
Yet there is another $41 billion in loans to be assessed. Same deal, Chevron raising money in the US on the cheap then selling it to itself here at an enormous mark-up; transfer pricing of money, a smart-alec ring-a-ring-a-rosy structure designed to load up the Australian subsidiary with heavy debt and therefore eliminate its tax liabilities through billions in interest payments to the parent in the US.
Would it be fair for the Tax Office to apprehend multinational executives – as it did with the Oswals – and detain them until they paid the tax they owed? The tax lobby would claim that the assessments are made over the local subsidiary, in this case Chevron Australia; therefore liability should rest entirely with the local subsidiary.
The reality however is that Chevron Corp directors are effectively shadow directors of the Australian subsidiary. They devise the tax structures, they benefit from the tax structures. There is no benefit to the body corporate which is Chevron Australia. While Chevron Australia has gearing in the vicinity of 60 per cent, Chevron Corporation in the US has gearing of just 8 per cent.
Why would local directors agree to accept a deal where they borrowed from another entity at such extortionate interest rates, knowing what it cost the lender – the same global company – to raise the funds in the first place?
The public is becoming increasingly aware of these big tax scams and this rising knowledge, and attendant outrage, will bring further pressure for reform.
We note that even the Chevron tax coverage the Rupert Murdoch’s News Ltd press in the past week has been uncharacteristically fair. Until now, News has championed the interests of Chevron like a litter of slavering lap-dogs.
After our original investigation of the Chevron structures, The Australian newspaper sallied forth with its usual attack piece, whitewashing the activities of the oil major:
“The caricature of oil executives in good suits and American accents defending billions in cash stashed in Bermuda is manna from heaven for journalists,” led one of the stories.
“Michael West, a vocal critic of tax structures among multinationals, including News Corp, publisher of The Australian … West claimed “secretive oil major Chevron Corp has taken the art of tax avoidance to its ultimate form thanks to a scheme so aggressive that it goes beyond merely reducing exposure to income tax, but, rather, has been designed to make a profit from the Australian Tax Office”.
Yes, we still stand by that call. The Australian went on:
“By West’s own admission, the findings were contained in a report “commissioned by unions in the United States” describing Chevron Australia’s tax arrangements as a “sham”.
Yep, that one too. We helped the union find the appropriate expert to unravel the sham transactions.
They hit us again; no fewer than eight attack jobs by five News Ltd journalists over over multinational tax stories (they are big on character assassination at Holt Street):
“But the (Senate Tax) inquiry’s concentration at times on tax paid as a proportion of revenue rather than profits, a theme pursued in reporting by The Sydney Morning Herald’s Michael West, is raising concerns in business circles.
“West has taken aim at companies ranging from Shell and Chevron to local infrastructure company Transurban, based largely on tax paid as a proportion of revenue rather than profit.”
Yes, we stand by all that too. The fact is that profit can be and is manipulated – with the collusion of EY, KPMG, PwC and Deloitte acting as both tax advisers and auditors – whereas revenue is harder to manipulate.
Moreover the ATO itself uses tax-versus-revenue as one of its key metrics for evaluating tax avoidance.
News Ltd reporters in at least two stories claimed that one of our reports about Rupert Murdoch’s media empire siphoning money offshore had been corrected. There was no correction. Here it is here, in pristine condition: