Chevron on Friday lost its appeal in a major Australian court battle over Aus$340 million (US$256 million) in tax and penalties in a case with possible global implications for multinationals looking to cut their obligations.
The Federal Court ruled in favour of a 2015 decision by the same court that the US energy giant had minimised its payments through a loan scheme and ordered it to foot costs, estimated by local media at more than Aus$10 million.
The ruling is a significant victory for the Australian Taxation Office (ATO), which is investigating other global firms for alleged avoidance.
It also followed an announcement by Canberra this month that seven multinationals were facing a total of Aus$2.9 billion in bills after assessing their tax arrangements.
Chevron said in a statement that it was disappointed with the outcome and would "review the decision to determine the next steps, which may include an appeal to the High Court of Australia".
The Australian government said the case outcome supported its decision to provide additional funding to the ATO "to take the fight to major taxpayers and challenge aggressive tax structures in place".
The ruling was closely watched as governments crack down on multinationals that build complex structures to reduce taxation.
Chevron added in its statement that the trial court had recognised that the financing was a "legitimate business arrangement" and the parties differed only over what interest rates should have been applied to the loans.
- 'Direct implications for cases' -
The court heard that Chevron subsidiary ChevronTexaco Funding Corporation, which is incorporated in the US state of Delaware, had loaned its Australian arm US$2.5 billion in 2003 at a favourable interest rate.
But tax officials said the rate of repayment -- which could be set against tax -- was much higher than if it had borrowed from another company.
The ATO is currently carrying out 71 audits in 59 global firms, with some 1,000 officers part of a taskforce investigating companies' tax arrangements.
The tax office hailed the decision as "significant" and said it had direct implications for some cases it is "currently pursuing in relation to related party loans".
There were also indirect implications for other transfer pricing cases, the ATO added.
"This is the first matter to reach an Australian court which tests how our transfer pricing rules apply to interest paid on a cross-border related party loan," it said.
KPMG tax partner Grant Wardell-Johnson said the decision was a "substantial win" for the ATO.
"Many taxpayers will need to review their transfer pricing methodologies," he told The Australian Financial Review.
The Tax Institute's senior tax counsel Robert Deutsch told the Sydney Morning Herald that although Chevron might take the case to the High Court, "there is neither certainty that such an appeal will be made nor, if made, that it would be successful".
Canberra has sought to crack down on tax avoidance by multinationals by introducing new laws, including stronger protection for whistleblowers and harsher penalties for failure to meet compliance or disclosure requirements.
Companies including Apple, Google and BHP Billiton were grilled at parliamentary hearings on their tax structures in 2015. The Senate inquiry is expected to resume hearings next week.