The ruling that BHP Ltd and BHP Plc (which have the same directors and act in sync) are associates has implications for the Tax Office’s ongoing dispute with Rio Tinto, which also has a dual-listed structure and channels all of its Singapore marketing profits to Rio Tinto Plc, escaping Australian tax entirely.
“This is a highly complex area of the tax law,” a BHP spokesman said. “BHP is considering the full Federal Court’s judgment and its position in relation to any appeal.”
The Australian Financial Review revealed in April 2015 that BHP was in dispute with the Tax Office over $US5.7 billion ($7.95 billion) in profits earned by its Swiss subsidiary, BHP Billiton Marketing AG, through its Singapore branch from 2006 to 2014.
In 2014 alone, BHP bought ore from its Australian mines (and some other operations) for $US33.7 billion, and after freight and other costs sold the ore to end customers for $US38.6 billion, registering a profit of $US941 million for the Singapore marketing arm, which was not taxed in Singapore.
BHP Billiton Marketing AG is 58 per cent owned by BHP Ltd, and this portion of its Singapore profits was caught by the Controlled Foreign Companies rules and taxed in Australia at 30 per cent. However, 42 per cent of the Singapore profits went to BHP Plc and were not taxed in Australia or Singapore, or even in Britain.
While most BHP mines in Australia are owned by BHP Ltd, the Singapore arm also marketed ore from Australian mines owned by BHP Plc. The Singapore marketing profits on these mines were 100 per cent attributable to BHP Plc, which meant no Australian or British taxes were paid.
These BHP Plc earnings were the focus of the court case. The judges ruled two to one that as BHP Ltd and BHP Plc were associates, then BHP Ltd (in Australia) was entitled to 58 per cent of the profits, which were taxable here under the CFC rules.
The case covered only $43 million in primary tax from 2006 to 2010, but BHP has received further assessments of $39 million covering up to 2015.
Assets spun off
In May 2015 BHP spun off most of the Australian assets owned by BHP Plc into South32, closing most of this loophole.
The Singapore accounts filed by BHP Billiton Marketing AG show that in 2015 it reported $US161 million profit from “discontinued operations”, apparently a reference to the assets put into South32.
As part of last November’s settlement from the 2020 financial year, BHP Ltd will take 100 per cent of the Singapore marketing arm, bringing all of the earnings back into the Australian tax net.
Rio Tinto’s marketing structure differs from BHP in that while BHP Singapore actually buys ore from Australian mines and resells it, Rio Singapore charges a marketing fee to its Australian operations through a complex structure.
While BHP pays zero tax in Singapore, Rio pays 5 per cent tax there.
BHP’s 15-year tax arrangement with the Singapore government expires in July 2020, after which the company says it will pay tax at “a reduced rate”. Singapore’s standard corporate tax rate is 17 per cent.
from Just News Viral http://bit.ly/2RX0R8m
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