Mining giants BHP Billiton and Rio Tinto are being pursued by the Australian Taxation Office for channelling billions of dollars in profits from iron ore sales through companies that pay almost no tax in Singapore.
While BHP Billiton and Rio TInto are Australia’s largest taxpayers, The Australian Financial Review has obtained documents that show the two mining companies report $2.6 billion a year in profits in their Singapore marketing hubs where they pay tax rates as low as 2.5 per cent.
The arrangements save the two companies more than $750 million a year in Australian tax and the ATO regards it as tax avoidance under the transfer pricing rules. The ATO is pursuing multibillion-dollar claims against each company, says a source with direct knowledge of the disputes.
The exact amounts of the potential tax bills are unclear and both companies have fought the ATO for years and argue their Singapore operations were not set up to reduce tax.
With scores of Australian companies rushing to open their own Singapore operations, the BHP Billiton and Rio Tinto cases shape as key precedents for the ATO, which has been warning of compliance problems with marketing hubs since 2010.
BHP Billiton and Rio Tinto, which will appear before the Senate inquiry into corporate tax avoidance on Friday, vigorously deny the claims. They say their marketing arms perform a vital function and are located in Singapore to be close to customers, not for tax reasons.
NO ARGUMENT OVER AUSTRALIAN OPERATIONS
The disputes do not relate to operations in Australia, where BHP Billiton paid $US7.8 billion ($10 billion) in taxes and royalties last year, while Rio Tinto paid $US6.2 billion.
The documents obtained by the Financial Review show BHP Billiton has paid no Singapore tax on $US5.7 billion in profits reported by its chief Singapore marketing company since 2006, with all earnings repatriated to a Swiss parent company and then to the Netherlands.
In those nine years, $US25 billion of BHP Billiton costs and profits have been directed through Singapore.
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