In April of 2017, the Full Federal Court of Australia handed down its judgment in the landmark transfer pricing dispute between Chevron and the Commissioner of Taxation.

Notably, all three judges found for the Commissioner of Taxation.

MinterEllison were the instructing solicitors for the Commissioner in these proceedings.

The central issue

The issue in the case was whether the interest rate on the AUD equivalent of a US$2.5 billion loan from a wholly owned US-based Chevron subsidiary to Chevron Australia Holdings Pty Limited (‘CAHPL’) exceeded the arm’s length interest rate.

The assessments in dispute were based on transfer pricing determinations made under Division 13 of the Income Tax Assessment Act 1936 (for 5 years in question) and under Division 815-A of the Income Tax Assessment Act 1997 (in respect of the last 3 years).

Although both of these provisions have now been repealed, the Chevron case highlights the difficult statutory interpretation questions which arise in transfer pricing disputes. The case also highlights complex matters of evidence including issues in ensuring expert opinions are admissible, probative and reliable.

The landmark decision also highlights important lessons arising for multinationals involved with cross-border financing and those questions are not limited to an Australian tax context.

There has been considerable interest from overseas jurisdictions in the issues discussed in this case.

Implications of the case

The result of this case was that the Australian Taxation Office has been upfront about taking a more activist role in policing and enforcing Australia's transfer pricing legislation.

Further, Treasury, via the Foreign Investment Review Board (FIRB), appears to be facilitating this by asking detailed questions regarding the intragroup finance arrangements of foreign investors.

If foreign companies investing in Australia were not already anxious about the implications of the Chevron Case, this recent change in FIRB approach should mark a renewed focus on compliance with Australia's transfer pricing regime.

The changes should not, in our view, chill foreign investment into Australia. However, foreign investors should be mindful, to ensure that they are well positioned to migrate any risks of non-compliance with Australia's transfer pricing legislation and the conditions of any FIRB approval. This is particularly significant given that FIRB has recently released advice suggesting a renewed vigour will be applied to compliance with FIRB conditions.