​Glencore again under the spotlight over tax

In the wake of the Federal Budget and the Government’s commitment to address profit shifting and tax avoidance the spotlight is back on miners’ tax payments.

In the budget released earlier this week, the government stated that it will focus on “stopping multinationals from shifting profit created in Australia to other countries to avoid paying tax anywhere in the world”.

It stated it is targeting alleged tax avoiders with heavy penalties including the full tax, 100 per cent of the tax itself again, and additional fines.

“For the first time, multinationals will be required to provide tax authorities with a global picture of their operations including income and tax paid in every country they operate in. This information will be shared between tax authorities,” the budget papers stated.

The issue of profit shifting and alleged tax avoidance has been a major accusation levelled against the mining industry in the lead up to the budget.

Ahead of its release Federal treasurer Joe Hockey put multinational companies on notice with plans to crack down on profit shifting measures, after Australia’s major miners were called to give evidence to the Senate Inquiry into Corporate Tax Avoidance, which revealed the extent of commodity marketing practices through offices in Singapore.

This issue built upon claims levelled against miners, in particular Glencore, that they had avoided paying any tax in Australia.

At the time claims were made against miner, which were later rescinded, that stated the miner had failed to pay tax for three years by reduced its tax exposure by taking large, unnecessarily expensive loans from its associates overseas, the piece went on to say the miner carried out profit-shifting within the company, which is a clear breach of the Income Tax Assessment Act.

These withdrawn claims acted as the catalyst for the eventual inquiry into resource company profit shifting claims.

Now Glencore is again under the spotlight as the Australian Tax Office carries out an audit of its Australian business and the government cracks down on profit shift claims after the budget.

The miner faced the current Senate Enquiry into tax avoidance, along with BHP, Rio Tinto, and Google, responding to questions over its actions and its Singapore based marketing hub, after it paid around $77 million in company tax following a pretax $1.36 billion loss.

“Since Xstrata established its Coal Marketing office in Singapore in 2011 the pre-tax profit to the end of 2014 was US$ 630 million on a consolidated basis of which Glencore’s share was $482 million,” the miner responded to senator Nick Xenophon’s questioning.

“Income tax expense in relation to this period totalled $30 milion on a consolidated basis, of which Glencore’s share was $23 million. Tax paid in relation to these profits totalled $20m on a consolidated basis of which Glencore’s share is $16m – the difference between tax expense and tax paid is due to the timing of instalment payments of Singaporean tax. The Singaporean marketing companies are subject to a 5 per cent corporate tax rate in Singapore.

“Glencore’s joint venture partners in its mines in Australia held the same respective interests in the relevant Singapore marketing companies.

“The Singapore coal marketing office was established by Xstrata. Since acquiring Xstrata, Glencore has integrated the coal marketing function into its global coal marketing business and is in the process of closing the Singapore coal marketing office. Going forward coal sales contracts will be directly between Glencore's coal companies in Australia and end customers.”

According to industry sources, with the current focus on tax many companies will find them themselves at loggerheads with the ATO as it’s not unusual for companies to have a difference of opinion on complex tax laws, with much of it down to the interpretation of tax laws.

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