Viva Submission

Viva Energy Australia Ltd ABN 46 004 610 459

Level 16, 720 Bourke Street, Docklands Vic 3008 T (03) 8823 4444 vivaenergy.com.au

Committee Chair Senate Economics Reference Committee PO Box 6100 Parliament House Canberra ACT 2600 July 29, 2015 Dear Committee Chair

Submission - Inquiry into Corporate Tax Avoidance and Minimisation

Viva Energy Australia Limited (Viva Energy) welcomes the opportunity to make a submission to the Senate Economics References Committee (the Committee) with respect to the inquiry into corporate tax avoidance and minimisation. Having launched as a stand-alone business in August 2014, Viva Energy has recently lodged its first tax returns and therefore is now in a position to make a submission on key matters of interest to the Committee. About Viva Energy In August 2014, Viva Energy Holding Pty Ltd (Viva Holding) completed the acquisition of the Shell Groups Australian downstream business (excluding the Aviation business), including Viva Energy and its other Australian affiliates (the Viva Group). Viva Energys business comprises the Geelong Refinery, a retail network with more than 860 sites, and a bulk fuels, bitumen, chemicals, marine and lubricants business supported by more than 20 terminals across the country. Viva Energy is the exclusive licensee of the Shell brand (for downstream sale and supply) in Australia and provides more than a quarter of Australias total fuel needs.

Viva Energy has firm plans for local growth and is committed to refining at Geelong. The company expects to invest $1bn during its first five years to improve the refining business, improve and expand supply chain capability and grow the retail business through network expansion and further development of the customer offering.

The group employs over 2,000 people across Australia (including contractors). Acquisition of Shells Australian Downstream Business The acquisition in August 2014 of the Viva Group was made by a group of investors which came together through Vitol Investment Partnership Limited (VIP). There are various investors in VIP and ultimately the Viva Group. Vitol Holding BV, through its affiliates (the Vitol Group), is the largest shareholder in the group, although it does not hold a majority equity shareholding. The Vitol Group is privately owned, and is the worlds largest independent energy trading group.

In addition to equity from the investors, Viva Holding was funded with external debt from a consortium of unrelated third party banks. There are no debt funding arrangements in place between the Viva Group and the Vitol Group (or any other investors).

Corporate tax avoidanceSubmission 117



Prior to the sale and acquisition in 2014, the Viva Group was part of the global Shell group. During that period, none of the Viva Group entities submitted tax returns as they were consolidated into a tax group, with the taxpayer being a Shell group entity which was not acquired by Viva Holding. Viva Energys Tax Profile Viva Energy is a significant contributor to Federal and State taxes. In 2014, it collected and paid to the Australian Taxation Office (ATO) approx $4.1bn of Excise taxes and $1.3bn of GST. Viva Energy is also a significant contributor to other Federal and State taxes including Fringe Benefits Tax, Payroll Tax and Stamp Duty. Viva Energy has a philosophy of early and transparent engagement with the ATO. In the short time that it has been a standalone taxpayer, significant time has been invested by both Viva Energy and the ATO in establishing an open and transparent process for a continuing dialogue with respect to Viva Energys tax position. In relation to income tax, Viva Energy has agreed a Pre-Lodgement Compliance Review process with the ATO. In relation to other key taxes including GST and Excise taxes, there has been regular and transparent dialogue with the ATO. Having commenced independent operations in August 2014, the Viva Group has only recently lodged its first tax returns (relating to the 31 December 2014 period).

During that period, the financial results were impacted by a significant reduction in oil prices along with a large decline in the AUD exchange rate. In addition, significant deal-related and restructuring costs were also incurred in relation to the acquisition of the Shell downstream business and establishment of the Viva Energy business. The business recorded capital investment of $70 million during that period.

Viva Energys Transactions with Related Foreign Operations During the period ended 31 December 2014, Viva Energy engaged in certain transactions with foreign parties which are related to it.

Vitol Holding BV (Vitol), located in the Netherlands, has various subsidiaries around the world which the Viva Group transacts with, including in Switzerland, Singapore and Bermuda. Viva Energy also has a related affiliate in Singapore which it transacts with. The Viva Group itself does not have any of its own overseas subsidiaries.

For the period ended 31 December 2014, Viva Holding received a once-off charge from a Vitol Group entity in Switzerland in relation to the facilitation of external (third party) investment costs and advice in respect of the August 2014 acquisition (approx. AUD$14m). As noted earlier, Viva Holding was the purchaser of the Viva Group.

For the period ended 31 December 2014, Viva Energy entered into various transactions with related entities. By jurisdiction these were: (A) Singapore: (i) the purchase of crude and oil products (approx. $3.65bn) and the sale of oil products (approx. $14m), each with a Vitol Group entity; (ii) management services (approx. $35m) with a Viva Group related affiliate; and (iii) a gain on hedging transactions (approx $87m), with a Vitol Group entity; and (B) Bermuda: freight-related costs (approx $5m) with a Vitol Group entity.

Viva Energys transactions with international related parties totaled approx $3.8bn during the period ended 31 December 2014. The vast majority of these transactions (approx 97%) involved purchases of crude for our Geelong refinery and refined oil products.




Due to insufficient local supply of both crude and refined products, local Australian demand is met by a combination of Australian crude and refined products together with imported crude and refined products. Supply of imported products is often via Singapore, which is the regions main trading and refining hub. The involvement of the Singaporean entities is not for the marketing of Australian sourced product.

Trading in oil commodities is one of the most actively traded markets internationally with the effect that there is a deep and standard pricing methodology for commodity transactions in the open market. Price is usually based on a marker as adjusted by a premium or discount, both of which are independently assessed by agencies such as Platts or Argus.

The pricing adopted by Viva Energy in transacting commodities with the Vitol Group accords with that standard industry methodology. In addition, virtually all of the commodities purchased from the Vitol Group are ultimately sourced from third parties unrelated to the Vitol Group. This is due to the fact that the core of the Vitol Groups business is in trading, logistics and distribution with only relatively small interests in non-Australian refining, exploration and production.

Further, it is important to note that more than 99% (by value) of these related transactions were directly with entities that are wholly-owned by the Vitol Group. As set out above, while the Vitol Group is the largest shareholder in the Viva Group, it is not a majority shareholder and there are other material shareholders. The importance of this is that, quite apart from any tax or legal obligations, the involvement of other external shareholders ensures that transactions with entities within the Vitol Group are undertaken on commercial arms-length terms.

Concluding Comments The Viva Group is an independent and locally managed business. Virtually all of the related party transactions undertaken by the Viva Group are with entities that hold a non-majority shareholding in the Viva Group and who themselves are purchasing products from non-related third parties. Therefore, such transactions take place on commercial arms-length terms.

Viva Energy has firm plans for investment and the generation of local Australian profits to support local Australian growth including a sustainable local refining presence at its Geelong refinery. Viva Energy recognises the importance of gaining the trust of the ATO and have been, and will continue to be, actively engaged in an open and transparent dialogue with the ATO.

Yours sincerely

Scott Wyatt Chief Executive Officer Viva Energy Australia


Documents

Viva Submission