By Heath Aston
Multinational fossil fuel companies behind Australia's biggest resources project are among a group of petrol and oil companies asked to explain tens of billions of dollars they hold in tax havens across the globe.
In letters received this week, eight companies have been asked by the Senate's corporate tax avoidance inquiry to detail their networks of international subsidiaries and reveal the value of funds moved between countries over the past five years.
Chevron Australia Holdings did not pay any tax last year, despite an operating income of $3.2 billion, and even claimed a refund from the Tax Office.
Chevron Australia Holdings did not pay any tax last year, despite an operating income of $3.2 billion, and even claimed a refund from the Tax Office. Photo: Reuters
US-based Chevron and ExxonMobil, owners of the mammoth Gorgon liquefied natural gas project in Western Australia, which will transform Australia into the world's biggest LNG exporter by 2018, are among the companies asked to make submissions ahead of likely public hearings of the tax avoidance committee.
Cost blowouts on the $US54 billion ($73 billion) Gorgon project already top $US17 billion – all of which will be tax deductible after gas revenues start flowing later this year.
The other companies are Caltex, BP, Woodside, Santos, Origin and Viva Energy, the company established to operate Shell's retail petrol business and remaining refinery operations.
As political debate in Australia rages about an appropriate level of government support for renewable energy, the traditional energy companies will be asked to account for money flows out of Australia.
The Senate committee has tried and so far failed to unmask the energy company that transferred $11 billion to Singapore in a single financial year, 2011-12, as revealed by Fairfax Media in April.
A single line in Note 16 of Chevron's latest consolidated financial accounts shows it holds $US35.7 billion in "undistributed earnings …. for which no deferred income tax provision has been made". This accounting term is otherwise known as "unrepatriated profits" or money held in low-tax and no-tax jurisdictions.
The company lists 40 subsidiaries, including in the tax havens of Bermuda and the Bahamas, as well as the low-tax jurisdictions of Singapore and the US state of Delaware.
But in Bermuda alone, there are 279 incorporated business names beginning with the word Chevron. They include companies that appear to be linked to the $US54 billion Gorgon operation, Chevron LNG Shipping Company Limited, Chevron Marketing & Trading Limited and Chevron Australia Transport Pty Ltd.
The company is also locked in a protracted court battle with the Australian Taxation Office over $322 million in unpaid taxes in Australia between 2004 and 2008. The case is a landmark "transfer pricing" matter whereby multinationals load up divisions in high-tax countries like Australia and then charge inflated interest costs to channel untaxed money to low-tax jurisdictions.
Chevron Australia Holdings, which had operating income of $3.2 billion last year, paid no tax and instead claimed a $5.7 million refund from the ATO.
A spokeswoman did not address detailed questions but said: "Chevron abides by a stringent code of business ethics, under which we comply with all applicable laws and regulations in the countries in which we operate."
ExxonMobil, which owns 25 per cent of the Gorgon project, holds $US51 billion in unrepatriated profits and has subsidiaries across the globe, including 24 registered in Bermuda, including those under the names Mobil and Esso.
Ahead of the G20 summit last year, Treasurer Joe Hockey branded as "thieves" multinationals that avoid paying tax in the countries where they generate profit. But in speech on Wednesday he also echoed comments earlier in the year by Chevron managing director Roy Krzywosinski that "lower taxes provide a great conduit for new investment and entrepreneurship".
Mark Zirnsak, the Uniting Church's representative of the Tax Justice Network said: "Oil and gas is another sector that uses secrecy jurisdictions with no tax or low tax to shift profits from places where they are doing business to places where they are not doing business."
Paddy Crumlin, President of the International Transport Workers Federation, which represents workers on the Gorgon project, said: "The number of subsidiaries Chevron has in Bermuda is an enormous concern considering they are under intense scrutiny for sidestepping their national tax responsibilities in Australia."
The Senate committee, which has so far grilled the heads of Apple, Google and Microsoft, as well as the heads of nine multinational pharmaceutical companies, has asked three specific questions to be answered by July 29.
How your company is related to any operations in foreign jurisdictions;
How many subsidiaries are related to Australian operations, and where these subsidiaries are located;
The value of transfers between these jurisdictions over the past 5 years and an explanation of those money flows.
Committee chairman, senator Sam Dastyari said: "Tax minimisation is not a victimless act. Every dollar of tax avoided through these strategies is a dollar not going to our schools and hospitals.''
Fairfax Media approached all eight companies for comment.
A spokeswoman for BP said: "BP will respond to the questions posed by the Senate committee, and our submission will be available by the end of July."
Caltex said it had received the letter and would engage with the committee and the ATO.
To describe Gorgon as another super-sized resources project in Western Australia does not do justice to the scale and scope of the venture.
When the taps are turned on later this year and liquefied natural gas begins to flow, Australia will be on a path to surpass Qatar as the world's biggest exporter of gas by 2018.
LNG will leapfrog coal to become the nation's second-biggest export behind iron ore, HSBC has forecast. Gas will be shipped to China, Japan, Korea, Taiwan and India.
The numbers – and the stakes for Australia's national wealth – are vast.
Chevron, the owner-operator of Gorgon, has promised royalties of $40 billion over 30 years and the Abbott government is counting on a $65 billion a year boost to GDP over that period and the creation of 3500 full-time jobs.
Industry Minister Ian Macfarlane told a fossil fuels industry conference in May that Gorgon, and Chevron's $US29 billion Wheatstone and North West Shelf projects and Queensland's Curtis and Gladstone projects, would help insulate Australia from falling export revenues from coal and iron ore.
"Although the LNG plants are largely foreign-owned, so profits from the plants will go abroad, the economy will be supported by growth in tax revenues, as LNG exporters pay both corporate tax and state royalties," HSBC analysts wrote.
But there is already an emerging unease about whether the Australian Tax Office will get its fair slice from the multinationals exploiting Australia's most significant gas resource.
Ongoing research into Gorgon and the accounting methods of its three main owners, Chevron, Shell and ExxonMobil has uncovered worrying signs. A study by the International Transport Workers' Federation, which represents mariners and workers on the project, has uncovered Bermuda-based subsidiaries that appear to have been incorporated as part of the project.
They include Chevron LNG Shipping Company Limited and Chevron Australia Transport Pty Ltd.
Between them, Chevron and ExxonMobil reported a total of $US87 billion in so-called unrepatriated profits – or money that will not be transferred back to the United States where it would be taxed at 35 per cent. The bulk of offshore earnings for those companies are held in secrecy jurisdictions from Bermuda to Switzerland and Singapore.
According to the ITF's senior researcher Jason Ward, Chevron Australia Holdings, the division behind Gorgon, has issued $2.2 billion in shares to a parent company in Delaware in the US. That company's parent is likely to be headquartered in Bermuda, Mr Ward believes – although details are scarce.
None of this will surprise Tax Commissioner Chris Jordan. The ATO has been locked in a protracted court case over $322 million in unpaid taxes between 2004 and 2008 – a time when Chevron had a near $5 billion stake in Caltex.
The company has displayed all the hallmarks of Mr Jordan's red-flag area of concern, transfer pricing, in which multinationals saddle Australian operations with hefty debts which require huge flows out of the country to service interest bills.
Appearing in front of the Senate's corporate tax avoidance inquiry on April 8, Mr Jordan said of transfer pricing in general: "It looks contrived, it looks artificial and it is shifting profit out of Australia."
He then addressed the Chevron case specifically: "Not to oversimplify it, basically, there was a borrowing at 2 per cent by the United States parent and an on-lending at 9 per cent. As I understand it, there were something like over 30 expert reports. There were 11 barristers in the case. It took years to get up."
In its latest accounts, Chevron in Australia recorded a $1.8 billion interest bill to its US parent. In the same year it paid no company tax in Australia and claimed a $5.7 million tax refund cheque from the ATO.
Mr Ward said a $US17 billion cost blow-out on Gorgon – from $US37 billion to $US54 billion – is another potential tax windfall. Construction costs can be claimed back as tax credits once the revenue from Gorgon begins to flow this year.
"The amount of related-party transactions between Chevron's own entities is phenomenal," he said.
Chevron's managing director in Australia, Roy Krzywosinski, recently complained taxes were too high in Australia and taxes would become an increasing concern as Gorgon and Wheatstone entered production.
"As we move forward in operations the ongoing challenge will change more on the tax side," he said.
A spokeswoman for Chevron declined to comment on Wednesday other than to say the company abides by all laws in the countries in which it operates.