The federal government is expected to score a $10 billion windfall over the next decade after multinational oil giant Chevron abandoned an appeal against the Australian Tax Office in the High Court.
In a settlement believed to be worth more than $1 billion, the US company's case hands Australian authorities a precedent that will shape all future tax arrangements for multinational resources companies.
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The decision has been described by the Tax Office as "one of the most important decisions" in corporate tax history and brings to a close one of the largest corporate tax matters before the ATO.
"The ATO's initial estimates are that the Chevron decision will bring in more than $10 billion dollars of additional revenue over the next 10 years in relation to transfer pricing of related party financing alone," said Financial Services Minister Kelly O'Dwyer.
![Chevron had abandoned its High Court appeal.](http://web.archive.org./web/20170820172533im_/https://www.fairfaxstatic.com.au/content/dam/images/g/u/n/1/p/u/image.related.articleLeadwide.620x349.gxz718.png/1503071770431.jpg)
A tax boost of $10 billon over a decade could be used to build 10 hospitals, 200 big schools and Sydney's light rail network five times over.
"Not only does this result put more revenue back to the Australian people, it also strengthens the ATO's position in pursuing other arrangements where multinationals seek to dodge Australia's transfer pricing rules," said Ms O'Dwyer.
The US company had launched an appeal over a $340 million federal court decision on its transfer pricing methodology but discontinued it earlier this week.
Transfer pricing refers to the way in which divisions of a company transact between themselves.
![Chevron is building the $US34 billion Wheatstone LNG project at Ashburton North in WA.](http://web.archive.org./web/20170820172533im_/https://www.fairfaxstatic.com.au/content/dam/images/g/x/l/l/m/k/image.related.articleLeadwide.620x349.gxz718.png/1503071770431.jpg)
It was slugged with the $340 million tax bill after it took on a $4 billion loan from its US parent used to develop Western Australian gas reserves, adding to the local subsiduary's debt and allowing it to avoid Australia's 30 per cent company tax rate.
The federal court found Chevron's Australian subsidiary should not be allowed to claim interest on its borrowings from the rest of the Chevron Group as if it was a standalone "orphan" company.
![Prime Minister Malcolm Turnbull and WA Premier Colin Barnett visiting Chevron's Gorgon LNG project at Barrow Island last ...](http://web.archive.org./web/20170820172533im_/https://www.fairfaxstatic.com.au/content/dam/images/g/u/9/b/x/h/image.related.articleLeadwide.620x349.gxz718.png/1503071770431.jpg)
The fossil fuel giant paid no company tax in five of the past seven financial years.
While the total settlement above a $340 million tax bill remains undisclosed, a Senate inquiry into corporate tax avoidance was told in June that the total amount of tax Chevron had in dispute with the Tax Office was more than $1 billion.
![Chevron, ExxonMobil and Shell, the three partners in the Gorgon project on the North West Shelf, charged their local ...](http://web.archive.org./web/20170820172533im_/https://www.fairfaxstatic.com.au/content/dam/images/g/s/e/m/t/z/image.related.articleLeadwide.620x349.gxz718.png/1503071770431.jpg)
Chevron is the first major company to roll over as the Tax Office looks to recoup up to $4 billion from resources companies known for their aggressive approach to tax minimisation.
A Chevron spokesman said the company believes the agreed terms of the settlement were a reasonable resolution of the matter.
![Financial Services Minister Kelly O'Dwyer](http://web.archive.org./web/20170820172533im_/https://www.fairfaxstatic.com.au/content/dam/images/g/x/h/q/m/i/image.related.articleLeadwide.620x349.gxz718.png/1503071770431.jpg)
"Chevron Australia has reached agreement with the Australian Taxation Office on the loan transfer pricing dispute and have withdrawn our appeal to the High Court," he said in a statement provided to Fairfax Media.
Tax Justice Network spokesman Jason Ward said the ATO should be congratulated on its landmark court victory.
"Chevron pushed the envelope so far that the result is, after many years and millions in legal fees, that we have a new world class standard that will prevent at least one blatant tax dodging trick for all multinationals moving forward," he said.
"Other countries should follow Australia's lead on this and adopt similar guidelines."
In a statement the Tax Office welcomed the settlement.
"We have been very clear that this case would have direct implications for a number of cases the ATO is currently pursuing in relation to related party loans, as well as indirect implications for other transfer pricing cases," an ATO spokeswoman said.
"These impacts will not be limited to the oil and gas sector, but across the entire economy, the ATO will not shy away from lengthy or complex cases. We have the laws, the powers and the capability to hold these multinational companies to account."