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A closer look at the Shell Energy decision and recent reforms in Australia

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On January 25 2022 the Full Federal Court handed down the Shell Energy decision

Jock McCormack of DLA Piper discusses the recent Full Federal Court decision in the Shell Energy Holdings Australia Ltd case, and summarises recent legislative reforms affecting alternative investments and patents.

On January 25 2022 the Full Federal Court handed down its decision on the deductibility of certain exploration costs and related tax issues.

The decision dealt specifically with the tax treatment of the acquisition of additional proportional interests in exploration permits and retention leases (i.e. statutory titles) by Shell from Chevron in relation to the Browse offshore petroleum project.

Most importantly, the court unanimously held that ‘exploration’ encompasses all activities directed towards investigating the commercial recoverability of the petroleum, and not just discovery activities/costs.

The case dealt, among other things, with the distinction between ‘exploration’ and ‘development’ activities under domestic Australian tax and other regulatory laws – but mainly under the tax law, i.e. section 40-80 of the 1997 Tax Act.

The case also held that the ‘first use’ of the relevant assets was ‘immediately upon acquisition’, that is when these assets were held ready for use. Shell was therefore entitled to an outright deduction under Australian law.

New CIIV regime

The new Australian corporate collective investment vehicles (CCIV) regime passed through Parliament in early February and will be operative from July 1 2022.

The new CCIV regime will provide an alternative investment vehicle largely similar to and aligned with the existing attribution management investment trust regime. However, it will be a corporate rather than a trust structure.

It will provide a new ‘flow-through’ vehicle for tax purposes and will allow various flexibilities including facilitating sub-funds of the CCIV to provide different products and pursue different investment strategies.

The regime is intended to be linked to the Asia Regional Funds Passport and allow a potential listing of a retail CCIV.

New patent box regime

On February 10 2022, a new bill was introduced into the Australian Parliament containing the proposed patent box regime in Division 357 of the 1997 Tax Act.

The new regime will apply to patents related to the Australian medical and biotechnology industries and will provide an incentive for businesses to undertake their research and development  and to commercialise their patented inventions in Australia.

An effective taxation rate of 17% will apply to certain income attributable to eligible patented inventions in Australia.

While the proposed regime will apply to eligible medical or biotechnology patents linked to therapeutic goods included in the Australian Register of Therapeutic Goods, it may in the future be extended to patents associated with low emissions and clean energy technologies.

The bill containing the new regime is expected to be debated and passed by the Australian Parliament in the coming months with a view to being operative in respect of income years commencing on or after July 1 2022. This means it will apply to eligible patents granted or issued after May 11 2021.



Jock McCormackPartner, DLA Piper AustraliaE:  

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