Angela Wood and Frank Putrino discuss the decision in Chevron Australia Holdings Pty Ltd (CAHPL) v Commissioner of Taxation  FCAFC 62.
The Full Federal Court has given the Commissioner of Taxation another significant win in its ongoing battle with Chevron Australia in relation to the transfer prices it used on certain cross-border related party loans with all three judges finding for the Commissioner.
The decision in Chevron Australia Holdings Pty Ltd (CAHPL) v Commissioner of Taxation  FCAFC 62, delivered on Friday 21 April 2017, has implications not only for taxpayers with cross-border related party financial dealings but also taxpayers with other broader cross-border related party dealings.
The case concerns the transfer pricing implications of an intercompany loan agreement between CAHPL and its US subsidiary Chevron Texaco Funding Corporation (CFC) and whether the interest paid by CAHPL to CFC exceeded an arm’s length price for the borrowing.
At first instance (Chevron Australia Holdings Pty Ltd (No.4) v Commissioner of Taxation  FCA 1092), the Federal Court had found that Chevron Australia had not discharged the onus of proof that the amended assessments raised by the Commissioner under Division 13 of Part III ITAA 1936 and Subdivision 815-A ITAA 1997 were excessive.
Key matters addressed by the Full Federal Court included the following:
The Full Federal Court spent little time dealing with a range of other matters raised in the appeal including some that are currently very topical in transfer pricing disputes with the ATO at the present time, for example:
The Full Federal Court in Chevron took a different approach to that taken by the Full Federal Court in SNF in relation to the characteristics of the hypothetical independent parties. The implications of this approach are potentially significant for taxpayers as the Division 13 hypothetical construct would enable features of the taxpayer in the context of the MNE group of which it forms part to be taken into account.
Acting inconsistently – or being perceived to act inconsistently – with internal company policies (for example to borrow externally at the lowest rate possible, to provide a parental guarantee for external borrowings by subsidiaries) is likely to be problematic from a transfer pricing perspective.