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

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

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

Sponsored by

Sponsored_Firms_piper.png
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: jock.mccormack@dlapiper.com  

more across site & shared bottom lb ros

More from across our site

Awards
ITR is delighted to reveal all the shortlisted nominees for the 2025 Asia-Pacific Tax Awards
The fates of pillars one and two hang in the balance after the US successfully threw its weight around in G7 and Canadian negotiations
Rafael Tena tells ITR about the ‘crazy’ Mexican market, ditching the hourly rate, and refusing to grow his fledgling firm in an ‘unstructured way’
It should be easy for advisers to be transparent about costs, Brown Rudnick partner Matthew Sharp said in response to exclusive ITR in-house data
The sprawling legislation phases out Joe Biden-era green tax incentives for businesses; in other news, the UK will reportedly maintain its DST despite US pressure
New French legislation should create a more consistent legal environment for taxing gains from management packages, say Bruno Knadjian and Sylvain Piémont of Herbert Smith Freehills Kramer
The South Africa vs SC ruling may embolden the tax authority to take a more aggressive approach to TP assessments, an adviser tells ITR
Indirect tax professionals now rate compliance as a bigger obstacle than technology and automation; in other news, Italy approved a VAT cut on art sales
AI-powered tax agents are likely to be the next big development in tax technology, says Russell Gammon of Tax Systems
FTI Consulting’s EMEA head of employment tax and reward tells ITR about celebrating diversity in the profession, his love of musicals, and what makes tax cool
Gift this article