It was a superb win for the the Australian Tax Office against Chevron in the Federal Court last week but there is something everyone is missing, something which will turn the art of tax avoidance on its head; a game-changer for multinationals.

Put simply, Chevron borrowed $2.5 billion in the US at less than 2 per cent and on-lent it to Chevron Australia at 9 per cent. The full bench of the Federal Court found the interest rate was too high.

The case of Chevron is powerful evidence that multinationals in Australia, and elsewhere, are not bodies corporate in the traditional sense but agencies or puppet regimes which act in the interests of their parent companies overseas.

So it is that they should be treated by the Australian Tax Office as undisclosed agency arrangements and taxed accordingly, their related party transactions rendered invalid, their massive tax deductions on related party debt disallowed.

The evidence for agency is overwhelming: who is it that benefits from the high interest payments on all of Chevron Australia’s debt? Chevron in the US. Whose idea was it to load up Chevron Australia with all that debt from its parent? Chevron in the US. Who benefits from Chevron Australia being geared (debt/equity) at 60 per cent while and Chevron Corporation in the US is geared at just 8 per cent? Chevron in the US.

The directors of Chevron Corporation therefore are “shadow directors” of Chevron Australia. They are pulling the strings.

For those who aren’t familiar with these related party transactions, the point of Chevron Australia being loaded up with debt is that high interest payments on that debt reduce taxable profit so less tax is paid to the Australian government.

It should be said that Chevron is by no means alone in this orgy of related party debt, nor in its structure of globally-delegated authority. Most multinationals operate as puppet regimes. A cursory check of their boards of directors proves the point.

Google Australia for instance, an egregious tax avoider, has had three directors over the years, two based in California and one in Australia. That’s one local director for a company with $3 billion in revenue.

Chevron’s sham tax structures were first brought to light in 2015 in a report by former multinational oil company executive Mike Hibbins. Hibbins found that Chevron’s structure of “artificially created interest payments” was designed not merely to reduce tax but to make a profit from the Tax Office.

Hibbins’ report laid the foundations for the Senate Inquiry into Corporate Tax avoidance to pursue Chevron. When questioned by the Senate committee, Chevron responded with the customary rhetoric of the multinational tax avoider; that is, we have done nothing wrong, we have had the appropriate legal advice, we obey the law.

It was still towing that line in the wake of last week’s court judgement, saying it was “disappointed”, saying “the financing is a legitimate business arrangement”.

It also foreshadowed an appeal to the High Court. Indeed there is much at stake. Chevron has another $41 billion in similar related party debt to be assessed, billions of dollars in tax deductions at risk.

Yet this court judgement has far broader ramifications. The entire industry is at risk. Shell in Australia managed to book $60 billion in revenues over three years and pay zero tax.

As gas prices shot through the roof over the past two years, Exxon paid no tax while its parent in the US was paid record dividends.

BP omitted to disclose it to the Senate Inquiry but sucked out a tax-free dividend to a tax haven.

All the oil majors are in the crosshairs of the ATO. A recent submission to government on tax avoidance in the resources sector toted up the numbers in their annual reports.

The ATO found that over the past four years, total related party debts – that is loans by the oil giants to themselves – more than doubled from $52 billion to $107 billion. Meanwhile, third party debt rose from just $3 billion to $6 billion. This is a rort of Brobdingnagian proportions.

Interest expense within Australia fell from $457 million to $170 million while interest expense overseas rose from $1.7 billion to $2.4 billion.

Income tax payable plunged from $1.9 billion to just $547 million. There are mitigating global factors at play here, a burgeoning global gas glut and falling oil prices. Nonetheless, it is not merely on the income tax front where these oil and gas giants are shredding Australia’s revenue base.

In four years, Australia is poised to overtake Qatar as the world’s largest exporter of LNG (liquefied natural gas). According to Treasury estimates, Australia will receive $800 million in royalties for around 100 billion cubic metres of LNG.

For roughly the same amount of gas, the government of Qatar will receive $26.6 billion in royalties. While it is true that the state of Qatar had a far greater hand in developing its gas fields than Australia, whose production is overwhelmingly due to the investment of multinationals, it is also true that the Australian public is being short-changed.

As opposed to tax, a royalty is the payment the company makes to buy the resource – be that gas, coal or oil – from the public. It is accounted for in a company’s financial statements as a cost of goods sold, not as a tax. Via its incessant flux of “independent expert reports”, the Minerals Council of Australia and other industry lobby groups conflate taxes with royalties in order to inflate their contribution to the Australian economy.

Chevron has claimed that its projects in Australia will contribute $338 billion to federal government revenue and more than $1 trillion to Australia’s GDP by 2040.

These are majestically bloated numbers. The real contribution will be a small fraction of that, particularly as a shell company in the US tax haven of Delaware has lent $42 billion to Chevron Australia Holdings. Interest on that debt in 2015, some $2.2 billion, was raked offshore to Chevron’s related parties.

This level of debt, and the high interest rates, will ensure Chevron makes relatively tiny profits in Australia, just the way the board of Chevron in the US likes it. No profits, no tax.

This column, co-published by The Conversation with michaelwest.com.au, is part of the Democracy Futures series, a joint global initiative with the Sydney Democracy Network. The project aims to stimulate fresh thinking about the many challenges facing democracies in the 21st century.