Australia’s largest coalminer, Glencore, paid almost zero tax over the past three years, despite income of $15 billion, as it radically reduced its tax exposure by taking large, unnecessarily expensive loans from its associates overseas.
At up to 9 per cent, the interest rates on these $3.4 billion in loans were double what the company would have had to pay had it simply borrowed the money from the bank.
As it was claiming tax breaks in Australia on these inflated interest payments, the secretive Swiss-based multinational actually increased its lending to other related parties interest free. This may include its executives. Nobody from Glencore, which used to be called Xstrata, was available for comment despite repeated requests.
The aggressive tax avoidance tactics of Glencore Coal International Australia Pty Ltd have been identified in an independent analysis of the company’s accounts for Fairfax Media by an expert in multinational financing.
Along with the blatant irregularities in its borrowing and lending, the study also found a hefty increase in Glencore’s coal sales to related companies (up from 27 per cent to 46 per cent of total sales, with no explanation), indicative of transfer pricing – also known as profit-shifting – and an activity that appears to breach Section IVA of the Income Tax Assessment Act – the part that deals with schemes designed to comply technically with the law but whose ”dominant purpose” is really to avoid tax.
”The reality is that the whole of the Glencore Xstrata Group is now run as a series of business units controlled by one company (Glencore Xstrata Plc, incorporated in the UK, listed on the London and other stock exchanges), with its registered office in Jersey (a tax haven) and its head office is in Baar (Switzerland),” the report said.
”The truth is that Glencore Coal Investments Australia’s operations in Australia are, because of the Group’s business model, branch operations of the Swiss-domiciled parent entity, which uses the now dormant legal shell of an Australian body corporate in an attempt to hide the reality of its branch business in Australia.
”There also appears to be an increase in transfer pricing activity which may explain differences in revenues disclosed in the Australian accounts versus revenues reported as being from the same source in the group’s consolidated accounts.”
The source of the analysis is a former multinational executive who is independent of Glencore and its commercial rivals, prefers to remain anonymous but is personally concerned at the rampant levels of tax evasion and tax avoidance by multinationals operating in Australia.
The focus on Glencore’s tax is timely. Research from the Australia Institute this week identified $17.6 billion in government subsidies and assistance for the mining industry. As the third largest resources group in the country after BHP and Rio Tinto, Glencore is a beneficiary of this largesse.
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