Base Erosion by Intra-Group Debt and BEPS Project Action 4's Best Practice Approach - A Case Study of Chevron

Abstract

It is well known that many multinational enterprises use intra-group debts for tax avoidance purposes. Action 4 of the OECD’s Base Erosion Profit Shifting (“BEPS”) Project represents a recent major contribution to the literature on the subject, providing important insights into the design features and issues of different forms of interest limitation regimes in practice.

At the other side of the world, a recent major tax case and the Senate enquiry into corporate tax avoidance in Australia revealed detailed information about how Chevron used intra-group debts in its tax structures, which is very difficult, if not impossible, to discern from its financial statements. It provides a timely case study of how intra-group debts are used in practice, setting the stage for an evaluation of Action 4’s recommendations.

The aim of this article is twofold. First, it analyses two tax structures of Chevron in Australia as a case study to highlight the key issues arising from intra-group debts. Second, using empirical data of Chevron, this article evaluates whether Action 4’s recommendations are effective for addressing BEPS arising from intra-group debt.

Keywords: Base erosion, profit shifting, multinational companies, interest limitation, thin capitalisation, transfer pricing