ATO slugs Shell with  $755m bill in fight against multinational tax avoidance

The Australian Taxation Office has hit the British-Dutch oil giant Shell with a bill estimated at $755m as it continues to pursue multinational resources giants over claims they have avoided paying tax on offshore gas projects.

Court documents reveal Shell’s main Australian company, Shell Energy Holdings Australia, has been fighting the ATO for six years over tax on the company’s stake in the $30bn Browse gas project off the coast of north-west Western Australia.

The ATO’s pursuit of Shell is part of a broader effort to shake money out of big oil and gas projects that one of the authority’s most senior officials says has brought forward tax revenue by a decade.

Second commissioner Jeremy Hirschhorn declined to comment on the Shell dispute but said he was “very confident” big oil and gas projects would start to pay significant tax by 2021.

In an interview with the Guardian, Hirschhorn also revealed that every year the ATO received an average of two leaked sets of data about the clients of accountants, law firms and other service providers around the world, and expressed relief at victory over mining group Glencore this month in a high court fight over the ATO’s use of Paradise Papers documents.

The previously secret Shell stoush is revealed in documents the company filed in the federal court this month after the ATO threw out its objections in June and July.

Shell has asked the court to set aside the ATO’s decision to disallow $2.2bn in deductions the company has claimed for buying shares of gas tenements from another partner in the Browse project, Chevron, in 2012 and 2014.

Browse, Australia’s largest untapped conventional gas resource, has been in development for 15 years but has never entered production because of falls in oil and gas prices.

Tax law requires an asset to be used for exploration or mining before a deduction can be made.

However, Shell told the federal court it “used each asset by having it ‘held in reserve’ or otherwise held ready for use in its business”.

A Shell spokeswoman said the company was “engaging with the Australian Taxation Office with a view to confirming the correct tax outcome of Shell’s 2012 acquisition of interests in the Browse project”.

“Shell complies with all its legal and taxation obligations and is committed to paying the right amount of tax under the letter and the spirit of the law in all countries in which we operate,” she said.

Hirschhorn said the ATO acted early to squash the efforts of multinationals to send profits reaped from Australia’s oil and gas boom offshore without paying any tax in the country.

Two years ago, ATO officials were alarmed at the prospect that the big oil companies would avoid paying up to $10bn in tax over 10 years by pumping up the interest rate they paid on loans their local arms took out with offshore affiliates to finance the mega-projects.

However, a legal victory over Chevron, the lead partner on the country’s biggest project, Gorgon, emboldened the ATO to take on the rest of the industry. Last year, Chevron paid the ATO $866m to settle the lawsuit, which alleged the 9% interest rate charged on a US$2.5bn inter-company loan was far too high.

In December last year, Hirschhorn was promoted from deputy commissioner in charge of large companies to second commissioner for client engagement – a euphemistic title that puts him in charge of tax enforcement and about half the ATO’s 18,000 employees.

Glencore fails to prevent tax office using Paradise Papers documents

He declined to comment on the Shell case but said the ATO continued to take action over related party debt and other tax issues in the resources sector.

“Not all those disputes have washed through,” he said.

He said it was natural that the big projects would pay little or no tax in their early years, due to the billions of dollars poured into building them that needed to be recouped before profits could be made.

“Our success will be as a tax office if they start paying tax, very significant tax, in 2021, 2022, which we’re very confident will happen, rather than not paying tax up until the 2030s,” he said.

He said the ATO was “late to the table” in dealing with the use by mining companies including BHP and Rio Tinto of so-called “marketing hubs” in Singapore to reduce tax in Australia.

“It was really important for us to get ahead of the curve with the hubs for the gas producers, so we didn’t have that problem right from the start, so that’s been a big focus for us,” he said.

“We’ve been mostly successful and hoping to move to complete success.”

The attack on the resources sector also forms part of a broader ATO attack on “transfer pricing” abuse, where the Australian arms of multinationals pay inflated prices for goods, services or loans to their offshore affiliates, thus siphoning money away from the country without tax being paid.

Hirschhorn said the Multinational Anti-Avoidance Law, which came into effect in 2016, had put an end to a practice where some multinationals liked to pretend their Australian arms did nothing but distribute boxes.

Shell posts worst financial results since 2016 oil price crash

“But in the real world they’re a bit more than Australia Post, they’ve got people meeting the doctors, they’ve got people lobbying the pharmaceutical benefits scheme, they’re actually selling stuff here,” he said.

“You are running a successful business which would ordinarily earn commissions. In the real world, you would not ‘donate’ that successful business, with its rewards and risks of earning commission, in order to go onto a ‘cost plus 5%’ business model, meaning that you pay minuscule tax in Australia [and earn most of your profits offshore in a tax haven].

“I describe this as the ‘kidney donor’ approach to transfer pricing: just because you can point to someone living a full life on dialysis, doesn’t support a proposition that someone would remove their own kidneys and go on dialysis to transfer the ‘risks and rewards’ of their kidneys to someone else.”

He said the high court’s 14 August decision allowing the ATO to use documents from the Paradise Papers leak in a tax case against commodities group Glencore meant that “the status quo prevails”.

“I read something by one journalist that said Australia’s going to be a haven for hackers,” he said.

“Nothing’s changed. If we had lost we would not have been able to rely on any information leaked or obtained from a law firm, or probably any whistleblowers.

“On the existing Panama Papers we would have had to chuck them all out and pretend we had never seen them.”

He said the ATO would have to say “thanks but no thanks” to the average of two data leaks it received every year, mostly from other revenue agencies.

It is understood the ATO is interested in a fresh leak of data from Malta, a major offshore centre that is often used as a gateway to Europe and is popular with Russian oligarchs.

Hirschhorn said leaks were increasingly large.

“In the old days people could only steal or take a couple of paper files, you had to photocopy them,” he said.

“Now it can be gigabytes or terabytes of documents on one little USB.”

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