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Chevron claimed Gorgon bonanza would pay for tax cuts for everyone

Neil Chenoweth
Neil ChenowethSenior writer
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US energy giant Chevron claimed in 2005 filings that its Gorgon LNG project would pay so much tax that the government could cut personal income tax rates for all Australians.

Chevron Australia also forecast that the project, which last year paid $3.1 billion of interest to service $66 billion of loans from related companies, would be financed entirely debt free.

Chevron Inc's general tax counsel, Sandy Macfarlane, and Chevron Australia managing director, Roy Krzywosinski, along with executives from Chevron's Gorgon partners, Shell and ExxonMobil, will face questions at the Senate tax inquiry on Wednesday over the estimated $2.9 billion a year estimated profit the three partners make from Gorgon's funding.

Chevron Australia managing director Roy Krzywosinski will appear before the Senate tax inquiry Wednesday. Aaron Bunch

This profit is the gap between their estimated cost of funds and the interest that the three groups charge to their Australian subsidiaries for Gorgon debt.

Executives from AirBnB and Uber are also due to appear before the committee.

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Chevron made the upbeat claims about Gorgon's tax payments in a report submitted to the West Australian government in September 2005 as part of its bid for approval to develop Gorgon.

"In response to increased revenues and economic growth, governments may increase expenditures, and reduce the average personal income tax rate to keep the ratio of public debt to GDP from falling," the Chevron report said.

The claims were included in the Draft Environmental Impact Statement/Environmental Review and Management Programme for the Gorgon Development, submitted by Chevron in September 2005, which included a graph showing economic benefits for the Australian economy with or without a cut in personal income tax funded by Gorgon revenue.

Since then the cost of developing Gorgon has ballooned out, as have LNG production targets, as well as higher tax forecasts.

The report later repeated the forecast that personal income taxes would be cut because the government would be paying off debt "too rapidly" with the revenue from Gorgon.

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The findings were based on modelling developed by Access Economics and Monash University using 2002 economic data, and were built on the assumptions that "tax revenues from the Development are used to reduce overall income taxes to maintain the budget balance",

The models also assumed that "the Gorgon Development is wholly foreign-owned, and entirely financed by equity".

While this was the case when the study was originally produced for a 2003 government submission, by the time Chevron re-submitted it in 2005 Chevron had adopted a new funding structure which sidestepped tax, which would be the model for Gorgon's funding.

The graph Chevron included in its Draft Environmental Impact Statement submitted in September 2005. Chevron Australia

Last month the Federal Court confirmed $269 million in tax assessments related to a $US2.45 billion debt that Chevron raised in the US in June 2003 at an average 2 per cent interest and loaned to Chevron Australia at an average 9 per cent interest in a tax-free transaction.

The years of the court challenge have coincided with higher political donations by Chevron to both sides of politics, contributing $444,218 from 2011 to 2014, with $198,150 to the Labor Party and $246,068 to the Party to the Liberals and Nationals.

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Internal emails cited by Justice Alan Robertson in his judgement showed that after the merger with Texaco, Chevron set the Australian debt level and interest rate at te optimal level to minimise or eliminate Australian profits--a policy at odds with the 2005 submission which assumed no debt.

Chevron confirmed to the Senate inquiry in August that the Tax Office was auditing interest payments dating back to 2009 on its Gorgon debt, which last December stood at $36.5 billion.

Chevron Australia told the inquiry it had paid $5 billion in interest since 2009 to its US parent, Chevron Australia Petroleum Company, including $1.84 billion in 2014.

Chevron APP, registered in Delaware, made an estimated $1.7 billion profit last year by charging Chevron Australia up to 25 times its cost of funds, but despite this profit paid tax of only $US175 ($248) in Delaware, the International Transport Workers Federation said in a submission to the tax inquiry last week.

Last January ACIL Allen Consulting, which had contributed to the 2005 submission, produced an updated economic impact study which concluded that Gorgon and the associated Wheatstone project would generate $110 billion to Federal Government revenue by 2040 (measured in 2015 dollars.

This was based on tax projections provided to ACIL Allen by Chevron and ignoring interest deductions on the $30 billion of debt held by Chevron's partners.

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Chevron did not respond to queries on Monday by The Australian Financial Review.

Chevron has had an active role in publicly advocating tax reform. A Chevron executive was a member of the working group (together with Rio Tinto and Price WaterhouseCoopers) advising the Inspector General of Taxation, Ali Noroozi, in a highly critical review last year of the way the Tax Office handles transfer pricing investigations.

In a submission to the government's Business Tax Working Group in 2012 Chevron said that it "does not agree … that the Australian thin capitalisation rules are 'overly generous' when assessed against other countries, and note[s] that no compelling evidence has been provided to support that this is the case."

Chevron's tax counsel, Mr Macfarlane, went head to head with Pascal Saint-Amans, the head of the OECD's Base Erosion Profit Shifting reforms, in a panel discussion on US tax reform at a Washington conference In June.

Mr Macfarlane sits on the executive committee of the high-profile Tax Executives Institute in the US, which made a scathing submission to the OECD on BEPS proposals in 2013, that it was unduly biased against multinational companies and that companies' tax information was confidential and should not be used to compare with other companies' returns.

Developing typologies of company performance is a key tool used by the Tax Office, for example in assessing the use of Singapore marketing hubs.

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In earlier queries last week a Chevron spokesman told the AFR: "The company's current income tax profile reflects where we are in our investment life cycle.

"That is, the costs associated with funding the Gorgon and Wheatstone Projects, along with our significant exploration and R&D spend, has largely offset revenues generated from our existing primary sources of income.

"However, once Gorgon and Wheatstone have completed construction and are in full production, they are expected to significantly bolster government revenue over their operating lives.

"In Australia, in the past five completed financial years Chevron Australia has paid more than $A3 billion in federal and state taxes and royalties, with income tax payments totalling approximately $430 million.

"In addition, Chevron is a significant taxpayer globally. In 2014 Chevron's worldwide income tax expense was $US11.9 billion with $US9.4 billion relating to operations outside of the US," the spokesman said.

"In addition, Chevron's 2014 expense for taxes, other than taxes on income, was about $US12.5 billion. Our worldwide effective tax rate was 38.1 per cent in 2014 and has averaged 41 per cent in the past five years."

Neil Chenoweth is an investigative reporter for The Australian Financial Review. He is based in Sydney and has won multiple Walkley Awards. Connect with Neil on Twitter. Email Neil at nchenoweth@afr.com.au

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