Chevron Australia Holdings Pty Ltd v Commissioner of Taxation

Introduction 1 These reasons concern the respondent Commissioner's application to amend his Further Amended Appeal Statement. 2 The appeals themselves involve, relevantly, Pt III Div 13 of the Income Tax Assessment Act 1936 (Cth). In particular, the parties are at issue, both in terms of the facts and the law, as to whether, broadly, the interest expense in respect of an advance of USD 2,450,000,000 to Chevron Australia Holdings Pty Ltd (CAHPL) by its subsidiary, ChevronTexaco Funding Corporation (CFC), exceeded the arm's length consideration in respect of the acquisition, within the meaning of s 136AD(3), having regard to the meaning of "arm's length consideration in respect of the acquisition of property" in s 136AA(3)(d). That provision states that a reference to the arm's length consideration in respect of the acquisition of property is a reference to the consideration that might reasonably be expected to have been given or agreed to be given in respect of the acquisition if the property had been acquired under an agreement between independent parties dealing at arm's length with each other in relation to the acquisition. 3 Broadly, it is each of the 2004 to 2008 years of income which are in question. 4 The trial of these applications or appeals is set down for 13 days beginning on 29 September 2014. Interlocutory orders made on 22 October 2013 presently provide that the applicant file and serve any further affidavits on which it intends to rely, by way of reply, on or before 25 July 2014. 5 The Commissioner's Further Amended Appeal Statement, so far as presently relevant, states as follows: 50. The property acquired by CAHPL under an international agreement was USD 2,450,000,000. 51. In the alternative to [50], CAHPL acquired property being rights, benefits or facilities provided under an agreement for or in relation to the lending of moneys. 52. CAHPL and CFC were not dealing with each other at arm's length in relation to CAHPL's acquisition of property from CFC. 53. The interest paid to CFC by CAHPL, in respect of the property acquired, exceeded the arm's length consideration in respect of the acquisition. 54. Without restricting the generality of [53], in determining the arm's length consideration in respect of the acquisition, it is necessary to consider the functions, assets and risks of CFC. 55. Without restricting the generality of [53], if the applicant's contention, which the respondent disputes, that CAHPL would have a sub-investment grade credit rating if it borrowed USD 2,450,000,000 or its AUD equivalent is accepted, then CAHPL would have borrowed a lesser amount which enabled it to maintain an investment grade credit rating. 6 By an interlocutory application filed on 17 June 2014 the Commissioner seeks an order granting him leave to file and serve a Second Further Amended Appeal Statement to renumber the present [55] as [58] and to add the following new paragraphs: 55. Without restricting the generality of [53], if CAHPL had acquired the property under an agreement between independent parties dealing at arm's length, CAHPL would not have acquired that property on the terms of the Credit Facility Agreement in one or more of the following respects: (a) it would have borrowed in US$ and incurred a liability to pay interest and repay principal in US$; (b) the terms of the loan would have required the provision by CAHPL of financial covenants and/or security acceptable to a prudent lender. 56. Without restricting the generality of [53], in determining the arm's length consideration in respect of the acquisition of the property, the interest rate would have been determined having regard to the credit rating of CAHPL which would have been an investment grade credit rating. 57. Without restricting the generality of [53], if the applicant's contention, which the respondent disputes, that CAHPL would have a sub-investment grade credit rating if it borrowed USD 2,450,000,000 or its AUD equivalent is accepted, CAHPL would not have been able to acquire the property on the terms of the Credit Facility Agreement. 7 The Commissioner submitted that the proposed additional propositions did no more than particularise the broader contention in [53]; were already the subject of debate in the evidence and submissions filed; and were already explicitly the subject of contentions in the appeal statement with respect to the appeals, being heard concurrently with the present matters, which concern determinations under Sub-div 815-A of the Income Tax Assessment Act 1997 (Cth) in respect of the same transaction. 8 The Commissioner accepted that the applicant may wish to contend that, on a proper construction of Pt III Div 13, these proposed contentions did not go to the ascertainment of the relevant arm's length consideration but submitted that that question of construction was properly a matter for the final hearing. 9 The applicant submitted that leave should be refused on the ground of futility in the sense that the amendments, if permitted, were bound to fail. In particular it was submitted that the language of s 136AD(3) did not permit the Commissioner: (a) to substitute and then price different property supplied under another international agreement with different terms, as he sought to do in proposed [55]; (b) to substitute a different taxpayer with a different credit rating as he sought to do in proposed [56]: the taxpayer's credit rating, if relevant, turned upon its actual financial circumstances as at the date of the entry into of the international agreement; (c) to contend that an actual international transaction would not have taken place if the taxpayer had dealt at arm's length with an independent party, as a means of defending his s 136AD(3) determinations. Division 13 assumed that the international transaction can be priced, even if it be one which finds no comparisons outside of a wholly owned group. 10 The applicant submitted that to allow the amendments would require the taxpayer to lead evidence not only on the transaction which was entered into but also in relation to a hypothetical transaction that did not occur in posited circumstances which did not in fact exist. 11 The applicant said that the opposition to the amendment was not based on procedural fairness. It maintained that the proposed amendments were new but did not oppose the amendments on that ground. Neither did the applicant taxpayer submit that the Commissioner should be denied leave to amend because of a lack of notice. It was submitted that because the proposed amendments were futile the applicant taxpayer should not be put to the inconvenience and expense of further evidence to meet them. 12 The Commissioner submitted that an extension of time for the applicant taxpayer to file and serve evidence relevant to the proposed amendments would not be warranted. He submitted that the proposed amendments were directly referable not only to his written outline of submissions but also to the evidence already filed and extensive cross references were given to both the applicant's filed evidence and to the Commissioner's.