BHP Billiton is contesting a A$1bn (US$755m) bill from Australia’s tax authorities related to its use of a marketing hub based in Singapore to sell commodities across Asia.
The tax bill follows audits by the Australian Taxation Office, which is investigating at least 15 multinational companies that it alleges use the low tax regime to avoid tax.
Rio Tinto’s Singapore marketing subsidiary is also under investigation for similar activities amid a wider crackdown on tax avoidance by Australia’s taxation authorities.
On Wednesday BHP, the world’s biggest miner by market capitalisation, rejected the tax office’s claim and said it would contest the tax bill in court, if necessary.
“BHP Billiton does not agree with the ATO’s position. Consequently, we have objected to all of the amended assessments and intent to continue to defend our position, including by initiating court action,” said BHP in a report, Economic Contributions and Payments to Government 2016.
The Singapore government has granted BHP a zero per cent tax rate under an incentive deal for its marketing activities, which sell commodities dug up in Australia and elsewhere to customers across Asia.
BHP argues these marketing activities, which employ 150 people in Singapore, add value to its products and all the profits it books in Singapore are consistent with guidelines set out by the Paris-based OECD.
In 2016, BHP’s main Singapore marketing entity reported profits of US$445m — about 10 per cent of profits generated by the company’s Australian operations.
The ATO claims BHP is avoiding tax by funnelling a portion of the profits generated from the sale of Australian commodities through Singapore. The dispute relates to the price that BHP sells its commodities mined in Australia to its Singapore arm before selling it on to customers in Asia.
Peter Beaven, BHP chief financial officer, said: “It’s an evaluation issue, it’s not a tax avoidance issue.”
However, the ATO has conducted transfer pricing audits for a period between 2003 and 2013 and presented BHP with additional tax demands worth A$899m. BHP also faces a separate bill of $117m related to Australia’s mining tax.
BHP paid $3.7bn in global taxes, royalties and other payments to governments in the 2016 financial year. Its effective tax rate globally was 35.8 per cent. When royalties are included, this rises to 58.6 per cent.
Australia has taken a leading role in tackling tax avoidance, in part because it is reliant on corporate tax revenues. Company tax accounts for 19 per cent of total tax takings, compared with an average of 8.5 per cent across OECD countries.
Last year an Australian parliamentary inquiry grilled executives of the big miners and energy companies about their tax arrangements.
Glencore executives told the inquiry it would cease funnelling sales from its Australian coal operations through Singapore. The Swiss miner told the committee that almost half its Australian exports flowed through Singapore.
Last week, the Australian taxation office warned the Big Four accountants against undermining its crackdown on multinational tax avoidance by creating “artificial and contrived” schemes to sidestep tough new laws modelled on the UK’s “Google tax”.
Sample the FT’s top stories for a week
You select the topic, we deliver the news.