Poor old BHP is suddenly fighting a losing tax battle on two fronts. From The Australian:
BHP Billiton says it is ready to fight for the legitimacy of its controversial Singapore marketing hub in court as the tax bill for the operation climbs above $1bn.
The mining giant has received fresh tax bills for the years 2009 to 2013, on top of existing assessments covering 2003 to 2008, BHP said in an annual tax transparency report released today.
The dispute is over the price at which BHP in Australia sells its products to the Singaporean marketing hub.
While the ATO contends the price is too low, leaving too much profit in the tax haven, BHP chief financial officer Peter Beaven said the company was “pretty confident” of its position.
Legal action to resolve the stoush appears likely because despite ongoing talks BHP has so far been unable to strike a deal with the ATO.
Mr Beaven said the Singapore hub was a “legitimate, stand-alone business”, used by BHP to increase the price its commodities, including iron ore and copper, fetch in Asian markets, especially China.
The Big Australian must be digging up 250mt of iron ore in Singapore that I don’t know about.
Meanwhile, Mr Beaven has the temerity to be arguing the complete opposite at Bloomberg:
Iron-ore exporters in Brazil would be poised to benefit under a proposal to raise iron-ore royalty charges in Western Australia, a move that could jeopardize investments in the region, according to BHP Billiton Ltd., the world’s third-largest shipper.
Producers in Australia, the top supplier, would face more difficult decisions on approving new mines to replace output as existing operations deplete, opening a path for competitors in Brazil, the second-biggest exporting nation, Chief Financial Officer Peter Beaven told reporters in Melbourne.
“It would most definitely not be good for Australia,” Beaven said. “Those tons would be replaced in the market, but of course they would be replaced from Brazil and other competitors.” He cited Vale SA’s S11D expansion project, with planned capacity to produce 90 million metric tons a year.
So, which is it? Iron ore is dug up in Australia or Singapore?
As it stands at $5 the levy is too high. The amount should be calibrated so that BHP’s and RIO’s competitiveness is not adversely impacted causing them to lose volumes (and therefore investment). That level is more like $2.50 per tonne than the proposed $5 which would put them on par with Vale, from UBS:
But, WA is clearly not charging high enough royalties when BHP and RIO are operating their iron ore businesses on margins well north of 100%:
These are “economic rents” and the people of Australia are being reamed for the privilege of developing their dirt. Remember that this is a non-renewing natural resource owned by the people of WA and Australia. It’s depleting nature needs to be reflected in the revenue being received for their development.
I would like to see WA Nats also commit to paying down debt with the windfall (or to invest it strictly in infrastructure or an SWF). If the debate is about equity over generations then the revenue should be accordingly distributed over time.
