BHP Billiton defends its Singapore marketing hub, says tax dispute is not about ‘tax avoidance’

BHP has defended its Singapore marketing hub, where it is accused of routing profits, and says it is confident of its position in a $1 billion dispute with the Australian Taxation Office over the amount of taxes payable on the sale of Australian commodities to its Singapore marketing business.

BHP’s chief commercial officer Arnoud Balhuizen, who was in Melbourne on Thursday speaking at a Melbourne Mining Club function, also assured investors that demand for the company’s products, including from China, was still strong.

The ATO has hit BHP Billiton with amended assessments of about $660 million, but with penalties and interest charges the total liability is more than $1 billion.

Several companies use Singapore, where the headline corporate tax rate is 17 per cent but with various incentives can be pushed down below 5 per cent, to lower their local tax bills.

The ATO – which recently had a major transfer pricing case win against oil giant Chevron – questions whether the marketing hubs are genuine commercial arrangements.

Speaking to reporters after the Melbourne event, Mr Balhuizen would not comment when asked whether the company was looking to cut a deal with the ATO or litigate, but he stressed that “the discussion with ATO is about valuation, not about tax avoidance”.

“It’s just a discussion about what’s the [right] level of the transfer price,” Mr Balhuizen said. “We are very confident in these discussions.”

Mr Balhuizen said the company had paid $65 billion in taxes and royalties over the past decade.

Asia was a crucial market for the company given almost 70 per cent of its sales went to the region, he said, so its marketing hub in Singapore was “critical for the connections”.

“Singapore these days is the centre for steel trading and iron ore trading, the centre for LNG trading and has been for a long time the centre in Asia for oil trading, so it is absolutely critical for us to be part of that ecosystem,” he said.

It was not about tax dodging. It was not about paying more or less. “We need to be part of that economic centre,” Mr Balhuizen said.

“Singapore is a very important part of the value chain of BHP.”

“We have hundreds of people in Singapore working every day to get best price for our commodities and to add value in Australia.”

He noted that only a very small portion of company’s procurement – made up of a global team of about 1400 people – was located in Singapore. The “far majority” were located in Australia, Chile, Houston and Shanghai.

Mr Balhuizen said there was more “downside than upside” from collapsing BHP’s dual-listed structure, which it has been called on to do by activist investor Elliott Associates.

“We are very confident that the way we have structured our commercial organisation is a sustainable way and it creates value,” he said.

Mr Balhuizen maintained that, despite slower projected growth in China, the miner still expected demand from the economic powerhouse for its resources to remain strong. He also said there were “reasons to be very excited” about India.

“With the Modi government having such a strong election result recently, I think it is safe to assume that premier Modi will be place for another term, so seven years from now, and that stable political framework with successful reforms he had on land and GST gives us a strong base for growth in India,” he said.

Mr Balhuizen also said China’s $500 billion “One Belt One Road” initiative – a plan to rebuild ancient trading routes from China to Europe overland and by sea – can deliver a major boost to demand for commodities and, if companies are not prepared, “we will lose our competitive advantage”.

“A lot of our suppliers in China are opening up branches along the road and shipping is an even bigger opportunity,” he said.