Chevron Case – Impact on Taxpayers

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Chevron Case – Impact on Taxpayers

On the 23rd October 2015 the Federal Court released the decision on the latest transfer pricing case in Australia, Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2015] FCA 1092. The Commissioner of Taxation was successful, with Robertson J. holding that Chevron Australia Holdings Pty Ltd (CAHPL) failed on its challenges to the amended assessments under Division 13 of the Income Tax Assessment Act 1936 (ITAA 1936) and, in the alternative, under Division 815-A of the Income Tax Assessment Act 1936 (ITAA 1997).

The Chevron case is a big win for the Commissioner and will definitely give confidence to the Australian Tax Office to pursue more transfer pricing cases, although it is expected that with a potential $322 million tax bill, Chevron will appeal.

As expected, the decision includes several points that will impact the way in which taxpayers set prices and analyse intercompany loans transactions. The key points from the judgement that will have an impact on taxpayers are as follows:


The decision brings to the attention the importance for taxpayers to have a commercial purpose for entering into international related party dealings and to be able to provide enough evidence of this commercial purpose (e.g. emails, minutes and notes of discussions). Likewise, it also emphasizes the importance of providing good comparable transactions to support the arm’s length nature of the prices agreed between related parties when entering into intercompany loans; sometimes is better to have a few good quality comparable transactions rather than lots of ‘comparable transactions’ with comparability issues (i.e. quality is better than quantity).This is particularly important given than the taxpayer had the burden of the proof.

This case was based on Australia’s former transfer pricing rules, however it is expected to have a significant impact on the application of the arm’s length principle in Australia going forward especially around the key technical concepts considered in this case (including implicit credit support, ‘reconstruction’ of terms and conditions, the credit rating of the borrower). Given Australia’s active role in the BEPS process, the decision is also likely to have a global impact as the OECD is developing detailed transfer pricing guidance on financial transactions.