Chevron's horrible week gets worse

CHEVRON Corporation has posted its worst profit result in more than decade and its workers are revolting at the costly and delayed Gorgon project. And now Labor's senate attack dog Sam Dastyari has the oiler in his sights over $3 billion made in payments to related companies – things are getting grim for the second-biggest oiler in the US.
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Haydn Black


In a submission to the Senate's inquiry into corporate tax evasion Chevron's Australian business unit has revealed that it has faced three audits by the Australian Tax Office since 2009.

It is also engaged in fighting off a $322 million tax bill in the Federal Court relating to a 2002 debt arrangement with its US parent that has proved to be a wise and profitable investment.

That deal - under which Chevron borrowed $2.5 billion at 1.2% interest in the US and then loaned the funds to the Australian arm at 9% interest - produced tax-free profits of $1.57 billion.

Chevron was slugged with assessments of $258 million and penalties of $64 million on the arrangement in 2010, and wrapped up the deal in 2011, but that was based on a profit of just $860 million.

The ATO now wants a bigger chunk of flesh for that and it is in the information and document gathering phase over Chevron's wider funding arrangements with its parent for development of the Gorgon and Wheatstone projects.

Chevron is understood to have paid more than $3 billion since 2009 to its US parent. Dastyari also wants his scalp.

His senate inquiry into tax evasion will summon executives from Chevron, ExxonMobil, BP and Shell to a hearing in mid-August to explain their tax situation.

Dastyari said the inter-party loan arrangements of Chevron and others appear to be about minimising tax obligations, and he wants to dig deeper.

Managing director Roy Krzywosinski wrote to the senate committee on July 30 after the oiler was invited to make a submission by committee secretary Dr Kathleen Dermody to explain the labyrinthine workings of its tax affairs.

Since 2009 Australia's largest exploration lease holder and the largest holder of natural gas resources has led the investment over $80 billion in Gorgon and Wheatstone alone, and it has noticed up over 25 offshore discoveries and has invested over $1 billion in research and development in Australia.

Based on independent economic analysis undertaken by ACIL Allen Consulting, the Australian projects Chevron Australia manages and participates in, over the period 2009 to 2040, are estimated to add more than $1 trillion to Australia's gross domestic product, put more than $380 billion to federal government revenue and generate more than 165,000 jobs .

Krzywosinski wrote that Chevron is already a significant tax contributor to Australia, paying more than $3 billion in federal and state taxes since 2010, primarily from its one-sixth share of the North West Shelf venture.

But it is Chevron's relationship with jurisdictions, particularly Singapore, that the committee is interested in, and how it might engage in transfer pricing to minimise its tax bill in Australia.

Singapore, where Chevron has operated since 1933, has a general corporate income tax rate of 17%, more than 10% lower than Australia, however it offers sweetheart deals to certain industries, such as commodities trading and marine transportation of around 2% tax.

That makes it an ideal hub to trade from and engage in some quasi-legal transfer pricing.

"Our revenues are immobile, we have a significant physical presence in Australia and receipts from the sales of our products are subject to tax in Australia," Krzywosinski said.

He said more than half of Chevron's sales are undertaken directly with third party customers. The balance has been undertaken with related foreign affiliates, primarily in Singapore.

"The full value of the sales proceeds received by our affiliates was included in assessable income in Australia," he wrote.

It says almost 97% of the value of sales from the NWSV are completed in Australia, with a US affiliate undertook some sales and received a 3% commission.

That deal was audited by the ATO and settled.

It has paid just $2.5 million in marketing fees to Chevron in Singapore, however its expenditure with related foreign affiliates represents some 13% of its total expenditure.

Overall, Chevron says it has complied with Australia's tax laws, and all its dealings with its parent and affiliates around the world are above board given the global nature of the oil business.

Chevron's bad week included a writedown of $US2 billion in assets globally and income falling to $571 million for the second quarter, below expectation.

Chevron's oil and gas production unit, its largest business arm, posted a loss thanks to the writedown and another $670 million charge for taxes and projects that have been put on ice.

The company sold $1.8 billion in assets as part of a plan to offload $15 billion in total assets.