Tax man targets BHP Billiton and Rio Tinto’s ‘Singapore sling’
It’s shaping as a fight that could recover hundreds of millions in lost tax revenue.
In one corner is the commissioner of taxation. In the other, Australia’s two biggest miners — BHP Billiton and Rio Tinto.
At stake is their use of Singapore-based marketing hubs, which until now have remained a closely-guarded secret.
“Marketing hubs are a huge concern for us — they are growing,” taxation commissioner Chris Jordan told The Business in an interview in April.
“It’s not just in the mining area. It’s being used in a much wider sense.”
Thanks to the Senate inquiry into corporate tax avoidance, the public is starting to get a clearer picture of how Singapore marketing hubs are being used by large multinational companies — and the billions of dollars in related-party transactions that are being funnelled through the hubs each year
“Singapore seems to be the go-to place for a lot of international transactions, marketing hubs, and what is potentially — potentially — serious multinational tax minimisation strategies”, said Labor senator Sam Dastyari, chair of the Senate References Committee.
It has now been revealed that from 2006 to 2014, BHP Billiton sold $US210 billion worth of resources to its Singapore subsidiary. That was then on-sold to customers for $US235 billion — a $US25 billion mark-up over eight years.
After expenses, the Singapore marketing hub was left with a $US5.7 billion profit over those eight years.
While the ATO accepts there are legitimate business activities being conducted in Singapore, it is disputing the amount of profit attributed to the marketing hubs of several firms.
“They do the shipping, they do the insurance, they do all sorts of so-called marketing around it,” Mr Jordan said.
“We don’t believe in most cases the mark-up is justified. Often the people in these hubs are the most profitable people in the organisation. So we are challenging them.”
The reason why BHP Billiton and Rio Tinto get an Australian tax advantage from the Singapore hubs is because of their dual listing on the London and Australian stock exchanges.
That allows them to put ownership of the Singapore hub partly in the hands of their UK related companies.
In BHP’s case, its Singapore hub is owned 58 per cent by BHP Australia, and 42 per cent by BHP UK.
Under Australian laws, profits on the 58 per cent are attributed back to Australia, and subject to company tax at 30 per cent.
That has resulted in BHP paying $945 million of Australian tax on the Singapore profits from 2006 to 2014.
But profits on the 42 per cent of the Singapore marketing hub that are owned by BHP UK escape the Australian tax net, so the more profits apportioned to Singapore, the less tax paid in Australia.
Mr Jordan says the marketing hubs are not “high risk” because the companies have fully disclosed exactly what is happening, and the pricing they are using.
Over $600m in disputed tax bills
The question though is whether the profits attributable to the Singapore hubs are reasonable.
BHP Billiton and Rio Tinto have revealed through the Senate inquiry they have been issued amended assessments for tax, interest and penalties of $522 million and $107 million respectively.
BHP is objecting to its assessment and says that, in any event, the disputed amount is a small fraction of its overall tax bill.
“The sum that you’re talking about, that’s spread over many years,” BHP Billiton chief executive Andrew Mackenzie told the ABC earlier this month.
“So what we are arguing about is an $8 billion — and often a bit higher — tax payment that we make to Australia.
“There’s a plus or minus 1 or 2 per cent at the margin that we are having a discussion about.”
A spokesperson for Rio Tinto said: “The company is open and transparent about its tax record. Last year we paid $6.2 billion in taxes and royalties in Australia — in the past five years we have paid more than $32 billion in taxes and royalties.”
Fortescue Metals chairman Andrew Forrest has seized on the tax revelations in his campaign against the resource giants.
“I would be really sensitive claiming they are the great tax payers when it is our iron ore which has built the balance sheets of British-based companies,” Mr Forrest told the ABC.
While Fortescue does have operations in Singapore, it does not have a marketing hub like the big two.
Even if it did, there would be no Australian tax saving anyway because Fortescue does not have a dual stock market listing overseas like BHP or Rio.
The Senate inquiry into corporate tax avoidance is due to report next month, but the chase for disputed tax dollars is likely to drag on for many years.
Labor’s Sam Dastyari said the ATO is doing a good job with the resources it has, but is hamstrung by confidentiality obligations.
“If companies are behaving in what is questionable tactics and questionable behaviour when it comes to multinational profit shifting, I believe a little bit of transparency and a little bit of openness isn’t a bad thing.”