As the rapid descent of commodity prices eats into
government royalties, the Australian Tax Office is gearing up to go after the
major miners for tax avoidance.
The ATO claims mining companies have been channelling
billions in profit through international tax havens like Singapore to avoid
paying more than $750 million in tax to the government, AFR
A Senate inquiry into corporate tax avoidance, which will
hear evidence from companies including Rio Tinto, BHP, Google and Apple, begins
today to investigate Australian tax laws and assess ways to stop corporate tax
BHP has denied any wrongdoing, stating that it has merely
acted within internationally accepted transfer pricing guidelines, and Rio
Tinto has declined to comment altogether.
The AFR report details strategy employed by BHP since 2005,
when the company registered a new business, BHP Billiton Marketing AG Singapore
Branch, which buys product from BHP Iron Ore and on-sells the product at a mark-up
of around 12.6 per cent, from US$33.7 billion up to US$38.6 billion in 2014.
Over nine years that mark-up has amounted to $US25 billion,
a profit on which BHP has not paid the 28.4 per cent tax rate that is paid on
the rest of the company’s iron ore profits.
This would amount to US$7.1 billion in Australian corporate tax
avoided over nine years, however AFR said the Singapore branch has reported
US$5.7 billion in profits over that period, with the rest of the mark up used
to pay for shipping costs from Singapore and other countries as well as tax in
Singapore at 2.5 per cent.
Rio Tinto also employs a tax saving strategy which involves
a transfer of profits through several Asian arms of the company to the UK based
Rio Tinto International Holdings, which is not taxed by the UK government as it is an offshore entity.
At present every US$1 drop in the price of iron ore takes
around $300 million in annual royalties from government coffers, and since the
start of the year iron ore has fallen from US$71.26 per tonne to US$46.70, a
loss of nearly US$25 per tonne in three months.
In 2014 BHP was the largest tax payer to the Australian
government, reporting an effective tax rate of 45 per cent which included
US$7.8 billion in tax.