BHP willing to head to court against ATO tax bill
BHP is willing to head to court to fight the Australian Taxation Office on a more than $1 billion tax bill over its Singapore marketing hub.
The world’s largest miner has continually 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 ATO over the amount of taxes payable on the sale of Australian commodities to its Singapore marketing business.
BHP has been in a long-running dispute with the tax man over assessments spanning 11 years (2003 to 2013) that total $661 million in primary tax, plus interest and penalties, which take it to more than $1 billion.
Under dispute is the margin on mark-ups on commodities sold to its Singapore operations, which many argue is a ploy to avoid tax in Australia, but which BHP denies.
Tax bill keeps rising
The tax bill keeps ticking higher each year as the dispute drags on. The ATO is now also auditing the company for years 2014 to 2016, the miner said in its annual Economic Contribution Report, although assessment for those years have not yet been issued.
BHP Billiton is one of the few companies on the ASX 200 that voluntarily provides some detail about the taxes it pays in Australia and around the world.
BHP’s head of tax is Jane Michie and she has fronted previous hearings held by the Senate inquiry into corporate tax avoidance, in which she’s defended the company’s Singapore operations and the amount of tax paid.
In Wednesday’s report, BHP formally objected to the ATO bills. “BHP does not agree with the ATO’s position,” the miner said. “Consequently, we have objected to all of the amended assessments and intend to continue to defend our position, including by initiating court action if necessary.”
Singapore charges zero%
Marketing hubs established by the major miners allow commodities dug up in Australia, such as iron ore and coal, to be “sold” to the companies’ own operations in countries such as Singapore before they are subsequently sold, with a hefty mark-up, to China and other nations.
As a result, billions of dollars in sales is taxed at Singapore’s tax rate – which, with a range of incentives on offer from the island nation, has been reduced to zero in the case of BHP – rather than at Australia’s higher 30 per cent corporate tax rate.
While BHP has been paying Singapore’s government a zero rate to date, under the agreement this rate is rising, but is still expected to remain well below Singapore’s corporate tax rate of 17 per cent.
Tax Commissioner Chris Jordan and his underlings have previously noted at various parliamentary hearings that the mark-ups used by miners and others in transfer pricing cases are too high. But BHP points out that 77 per cent of its sales and suppliers are in Asia and argues that the mark-up margin is appropriate to the risk and value add that is provided by its marketing operation in Singapore.
Dual listing structure
In the interim, BHP has, in line with usual practice that occurs when a tax bill gets issued, made partial payments to the ATO of about $328 million. The company noted that the transfer pricing dispute of $661 million is less than 2 per cent of total income tax the company paid over the period.
Due to its dual-listed company structure, BHP’s Singapore hub is owned 58 per cent by BHP Australia, and 42 per cent by BHP UK (the profits on the 42 per cent of the Singapore marketing hub that are owned by BHP UK escape the Australian tax net).
The ATO earlier this year released new transfer pricing guidance aimed at helping companies with cross-border financing – in 2015 worth about $420 billion across the economy – meet their tax obligations.
Almost half of the $420 billion related party loans are in the energy and resources sector (worth $202 million). About a quarter of related party loans are in the oil and gas industry (worth $97 million).
BHP’s other disputes
Separate from the transfer pricing dispute is another dispute with the ATO that also relates to its Singapore operations and a portion of profits attributed there.
In its 2017 annual report, BHP noted that “the group is currently in dispute with the ATO regarding whether profits earned globally by the group’s marketing organisation from the on-sale of commodities acquired from Australian subsidiaries of BHP Billiton are subject to ‘top-up tax’ in Australia under the Controlled Foreign Companies rules”.
BHP said it received amended assessments relating to the 2006–2010 income years, which it objected to, and which were then allowed in part by the ATO, and without penalties. These now total $US33 million ($A43 million). “The Group has sought review of the disallowed objections,” the miner said.
Then, between May 2016 and May 2017, the company received amended assessments for primary tax of $US30 million relating to the 2012–2015 income years, and interest of $US4 million (with nil penalties). “The Group has formally objected to the amended assessments,” BHP said.
The company noted there was also a royalty reassessments dispute with the Queensland Office of State Revenue relating “primarily to the basis for calculating the value of coal for royalty purposes under Queensland law”. The reassessments relate to the period from July 1, 2005, to September 30, 2015, and total $US173 million in royalties and US$80 million in interest (BHP share).
