Fortescue set up secret trading shell in low-tax Singapore
Fortescue Metals Group established a company in Singapore that could buy and sell its iron ore more than a year before it started attacking its rivals for doing the same thing.
The company, called Fortescue International Marketing, is incorporated and domiciled in Singapore. Still dormant, it is ready to be used at any time.
The principal activity of the company is “iron ore marketing services” and “trading of iron ore”, according to documents filed with the Singaporean business regulator. Its directors included, as at December last year, Fortescue chief executive Nev Power and chief financial officer Stephen Pearce.
Fortescue chairman Andrew Forrest has described BHP Billiton and Rio Tinto’s Singapore marketing hubs as a “tax shelter” and spoken proudly about Fortescue’s tax payments in Australia.
The trading hubs buy minerals from their own company in Australia and sell them, generating big profits in Singapore, where the corporate tax rate is much lower than in Australia. BHP and Rio Tinto say the hubs are legitimate businesses.
Fortescue did not respond to questions from Fairfax Media as to why it set up the marketing company in Singapore, or why it has been dormant since its inception in January last year.
The company said: “Fortescue has a simple and transparent tax structure, under which all group earnings are taxed in Australia regardless of their source.” All the company’s profits are taxed in Australia, and the tax office has a low risk rating on Fortescue in relation to all key tax issues.
Overseas marketing hub affect
One of the reasons Mr Forrest sought a parliamentary inquiry into the iron ore price was to “provide a forum for law makers and companies to discuss the impact of offshore marketing hubs on government tax revenue and royalties”. The Abbott government initially agreed to an inquiry and then changed its mind.
In the period from its incorporation in mid-January last year to 30 June, Fortescue International Marketing was dormant, according to its inaugural set of financial statements. The registered address is 10 Anson Road, #32- 15 International Plaza, Singapore, 079903.
In the time since Fortescue established the Singapore marketing vehicle, the iron ore price has fallen about 55 per cent to around $US62 a tonne. The price falls have hit Fortescue’s profits and share price hard. It reported an 81 per cent fall in interim profit in February this year to $US331 million ($422 million), from $US1.7 billion a year earlier.
When it was put to Mr Forrest on ABC Radio earlier this month, that Rio TInto and BHP would argue that they are huge contributors to the economy through the tax that they pay, Mr Forrest attacked their Singaporean marketing hubs.
“Well that’s a really sensitive issue isn’t it,” he said. “You’ve made huge profits and then you’ve funnelled those profits through a tax shelter in Singapore. You’ve taken around a billion dollars in profits, you’re arguing with the Australian Taxation Office, you’re not playing a fair game, either on the iron ore volume, the iron ore price or even on the tax you pay.”
BHP Billiton faces a tax bill of $522 million on its Singapore marketing operations, and further tax audits are continuing. Rio Tinto paid $107 million to settle a past back tax claim from its Singapore marketing hub.
Glencore’s coal marketing office in Singapore has also been in focus but it is in the process of winding it up.
BHP and Rio are among Australia’s largest taxpayers – they pay about 30 per cent of their reported profits as income tax worldwide. They also pay royalties and other state taxes. Both pay a greater share of their income in taxes than their two greatest rivals, Glencore and Brazil’s Vale.
