Chevron's multi-billion tax dodging: We don't agree

November 14, 2014
Issue 

You know those annoying “We Agree” television ads by the fossil fuel corporate giant Chevron? The ones where an actor playing a student or a concerned member of a community “agrees” with supposedly noble objectives of this multinational?

Those ads make me feel like puking.

The objective of this campaign was to sell the idea that Chevron agrees that "Oil companies should put their profits to good use" and "It's time oil companies get behind renewable energy". As if!

Chevron — which has an annual revenue of $220 billion and an annual profit of $22 billion — spends nearly $100 million a year running lying ads like these, apart from extracting 2.6 million barrels of oil a day and poisoning vast tracts of land and water resources with its fracking activities. This, by the way, is the company that sought to compensate residents near a recent fracking explosion it caused in Pennsylvania with free pizza.

But guess what? The public has been effectively subsidising this wasteful exercise in deceit through outrageous tax dodges that Chevron has been getting away with all around the world.

In an ongoing case before the Federal Court in NSW, the Australian Taxation Office (ATO) claims that Chevron has avoided paying $258 million in taxes by shuffling loans and other payments through various subsidiary companies and other related bodies.

Through this shuffle, Chevron has been able to borrow about $2.5 billion at a low 1.2% and, in effect, internally charge Chevron Australia 9% for it, enabling the higher rate to be claimed in its tax deductions.

This operation has allowed Chevron to grab $862 million in tax-free dividends from its Australian operation over five years.

But the Australian rip-off is dwarfed by Chevron's tax scams in other countries. In 2005, Chevron was accused of a US$10.8 billion tax scam in Nigeria.

Chevron's tax avoidance is just part of a bigger picture. The Tax Justice Network estimated that up to $80 billion has been lost in taxes over the past decade due to the complex tax-minimisation strategies employed by the biggest 200 Australian stock market-listed companies.

Dr Anthony Ting, Senior Lecturer at the University of Sydney Business School, explained to a recent seminar on corporate tax avoidance and the G20, that large multinational corporations like Chevron and Apple are starving public services around the world with multibillion-dollar tax avoidance schemes through what is known as Base Erosion and Profit Shifting (BEPS).

Ting's spectacular exposure this year of Apple's iTax scams, which “effectively sheltered US$44 billion from tax over four years”, has been widely reported.

But he has also done some revealing work on Chevron's tax evasion.

Chevron's US parent company recommended its Australian subsidiary incur a $2.5 billion debt in 2002 to create “the most tax efficient corporate capital structure”.

Ting said: “Basically, Chevron Australia set up a subsidiary in the US in Delaware, a US tax haven. This company is a shelf company — it has no employees, nothing except a $2.5 billion loan it borrows from a third party at 1.2% interest.”

As Chevron admits, this subsidiary “had no business activities other than raising funds ... for the benefit of [Chevron Australia]”.

Ting posed the obvious question: How can this shell company borrow at 1.2%?

“Of course, the parent company guaranteed the loan. But then it charges Chevron Australia an interest rate of 9% to use this loan to replace the US parent company’s direct equity. Basically this allows Chevron to erode its tax base in Australia by $220 million a year and over the ten years this scheme has been in place that is $2.2 billion.

“Chevron Australia pays the 9% interest to its subsidiary and that subsidiary sends dividends back to the US parent company.”

Ting believes that the ATO has a “mountain to climb” because multinational companies have long been allowed by use subsidiaries and related companies to avoid and minimise their tax payments by hiding behind the legal fiction that each of these companies is independent of each other when they are part of a bigger corporate entity.

He said the ATO is up against powerful corporate interests and lobbies, especially in the US.

The US government, Ting said, has been “knowingly facilitating the avoidance of foreign income tax by its multinationals” by “effectively disabling one of its major anti-avoidance weapons in its tax law — namely the controlled foreign corporation regime”.

This is why tax experts who are against the massive corporate tax avoidance schemes which have denied trillions of dollars of much needed public services around the world are sceptical about the Brisbane G20's likelihood of taking any significant steps to end these practices.

At its St Petersburg Summit in September last year, the G20 “fully endorsed” the OECD BEPS project.

In a paper published in the Australian National University's online publication The Conversation, Ting said that regardless of what progress is made by the G20, countries like Australia should implement a properly designed country-by-country reporting regime.

“Under the regime,” Ting wrote, “a multinational would have to disclose essential tax information — like turnover and profits, tax payments and the number of employees — separately for each country where it operates.

“While multinationals operate as one single enterprise, it is a challenge for tax authorities to obtain relevant information about these firms' tax affairs in order to identify targets for further investigations and audits.”

It bears recalling this little tax story next time that slick and slimy Chevron ad comes on. No, we don't agree Chevron. Not with your tax dodging, climate-wrecking, land and water-poisoning.

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