PTTEP Australasia (Ashmore Cartier) Pty Ltd v Commissioner of Taxation  FCAFC 71
In November 2013 the Federal Court (the ‘Court’) at first instance ruled in favour of the Commissioner of Taxation in a dispute with a taxpayer over its liability for Petroleum Resource Rent Tax (‘PRRT’) on sales of crude oil from its petroleum project. However, in June 2014, the taxpayer was successful in its appeal of that November 2013 decision to the full Federal Court (‘Full Court’).
At first instance, the Court held in favour of the Commissioner that the ‘consideration receivable’ for the sale of each shipment of crude oil was the amount determined under the relevant sales agreement (agreement amount) and not the agreement amount adjusted in accordance with a supplemental agreement to the sales agreement. Under that supplemental agreement, an adjustment was made to the agreement amount to take into account interest (referred to as Interest Value). The reason for this adjustment was that the taxpayer would receive quarterly payments (advanced payments) from the customer for expected shipments of oil to the customer, with a ‘true up’ occurring for shipments actually made. The interest adjustment operated in favour of the party (i.e. the taxpayer or the customer) which based on actual shipments, terms of payments for actual shipments and advanced payments effectively paying ‘sooner’ (in the case of the customer) or being paid ‘late’.
‘Consideration receivable’ considered
In its June 2014 decision, the Full Court overturned the decision at first instance holding that the ‘consideration receivable’ for the sale of each shipment of crude oil was an amount equal to the adjusted amounts paid to the taxpayer pursuant to the supplementary agreement. Relevantly, the Full Court was of the view that the supplementary agreement had the effect of altering the consideration for the supply as specified in the sales agreement.
- The Full Court held that the transactions in question were different from the transactions considered in both Esso Australia Resources Pty Ltd v Federal Commissioner of Taxation (2011) 199 FCR 226 and Woodside Energy Ltd v Federal Commissioner of Taxation (No 2) (2007) 69 ATR 465). In relation to these cases the Full Court was of the view that they were distinguishable since, in the case of Esso, the relevant payments did not have a sufficient nexus with the price for the gas sold, and in the case of Woodside which concerned hedging transactions with parties other than the buyers of the oil, the hedging transactions did not relate to the payment of the price.
It was also held by the Full Court that the ‘excluded expenditure’ provision in the PRRT law, including the policy intent of the PRRT, was not relevant in its decision and therefore did not prevent the adjusted amounts paid, to the extent the amended clause introduced a financing arrangement between the buyer and the seller, from being effectively deducted from the ‘consideration receivable’ amount.
The decision can be read in full at this link.
What does this mean?
At this stage it is unknown whether the Commissioner will apply for special leave to appeal the decision to High Court. In the meantime, PRRT taxpayers who derive or have derived assessable receipts under similar contractual pricing arrangements should consider the implications of this case to those arrangements and where relevant take appropriate action to preserve entitlements to refunds that may arise through overpayment of PRRT.