Australia chases BHP, Rio Tinto on Singapore tax shelter
Credit: Asian Legal Business
* Australia pursuing multibillion-dollar claims on BHP, Rio -AFR
* Singapore marketing hubs save the two A$750 mln/year -AFR
* Rio, BHP say the Singapore hubs not set up to save tax
* BHP says uses the hub as it is close to customers and markets (Adds tax office, Rio, BHP comments, revenue details)
Australia is pursuing global miners BHP Billiton and Rio Tinto for shifting billions of dollars in iron ore profits through marketing hubs in Singapore that pay almost no tax, the Australian Financial Review reported.
The Australian Taxation Office was chasing multibillion-dollar claims against each company, the newspaper said, citing a source with direct knowledge of the disputes.
The Singapore arrangements save the two companies more than A$750 million ($569 million) a year in Australian tax, it said.
BHP did not comment on whether it received a tax bill tied to its Singapore hub, but said in an emailed statement it “already pays income tax in Australia on a substantial portion of the revenue earned by the Marketing Operations as required under Australian tax law”.
Rio Tinto told the Financial Review it had not received a tax bill. It declined to comment beyond what it told the newspaper.
Both companies say their Singapore operations were not set up to cut tax but to be closer to their customers. BHP Billiton said it employs around 400 people in its marketing team in Singapore.
“As an important trading hub with proximity to the majority of our customers and relevant markets, our base in Singapore also provides important intelligence on commodity outlook and national and international economic trends that shape our investment decision-making,” the company said.
The Australian Taxation Office (ATO) did not comment on whether BHP and Rio Tinto were being targeted as part of its clampdown on what it considers tax avoidance.
“We currently have 15 audits of marketing hubs underway with more ready to go and at this stage expect to raise tax liabilities of around $1 billion,” an ATO spokesman said in an email to Reuters.
BHP said its transfer pricing was consistent with internationally accepted guidelines and highlighted that it is Australia’s largest tax payer. It paid $7.8 billion in taxes and royalties in Australia in the 2014 financial year.
Singapore, despite having few natural resources of its own, has been able to use a tax-incentive programme, combined with its strong financial sector, high standard of living and its large port, to attract dozens of commodity companies to set up on the tiny island.
While Singapore’s headline corporate tax rate is 17 percent, some companies can take advantage of its Global Trader Programme giving them concessionary rates as low as 5 percent if they meet certain conditions, such as conducting a high volume of business in Singapore and using local banking services.
Larger companies can enjoy even lower tax rates through closed-door negotiations with the government. Most of the world’s largest mining and oil companies, including BHP, Glencore Plc and BP Plc operate large businesses there.
BHP runs most of its Singapore operations through the branch of a Swiss entity, BHP Billiton Marketing AG. In 2013 it posted revenues of $38.6 billion and a gross profit of $996 million, with zero income tax expense, according to company records filed in Singapore.
Its accounts say the branch’s principal activities relate to the marketing and trading of commodities, including zinc, copper, lead, iron ore, metallurgical coal, petroleum and nickel.
Rio Tinto operates a number of subsidiaries in Singapore, including Rio Tinto Singapore Holdings, which posted a gross profit in 2013 of $997.4 million and paid income tax of around $96,106, and Rio Tinto Marketing, which posted a gross profit of $295 million and paid income tax of around $14.9 million.
The newspaper’s sources said Rio Tinto’s Singapore-related earnings, which flow to a UK company, were in dispute.
An Australian tax official said two years ago marketing hubs set up by multinational energy and resources companies were seen as a risk to tax revenue, with the hubs booking profits offshore from buying all the product from the parents’ mines and oil and gas fields and selling it to customers.
“Through our compliance work, we are finding that this may lead to excessive profits in the marketing entity,” deputy commissioner Mark Konz said in a speech in April 2013.
BHP Billiton, Rio Tinto and Fortescue Metals Group are due to appear at a hearing called by Australia’s Senate as part of a wider review of tax avoidance by multinationals.