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Australia vs Rio Tinto and BHP Billiton, April 2017 – Going to Court

Singapore marketing hubs are being used by large multinational companies — and billions of dollars in related-party transactions that are being funnelled through the hubs each year.

The Australian Tax Office has issued claims of substantial unpaid taxes to mining giants Rio Tinto and BHP Billiton. BHP Billiton and Rio Tinto have revealed through the Senate inquiry they have been issued amended assessments for tax, interest and penalties of $522 million and $107 million respectively.

These claims will be challenged in court.

The cases centres on the use of commodity trading/marketing hubs established in Singapore colloquially known as the Singapore Sling. The Australian taxation commissioner alleges Rio Tinto and BHP Billiton is using subsidiaries in Singapore to reduce the taxes in Australia.

It has been revealed that from 2006 to 2014, BHP Billiton sold $US210 billion worth of resources to its Singapore subsidiary. That was then on-sold to customers for $US235 billion — a $US25 billion mark-up over eight years. After expenses, the Singapore marketing hub was left with a $US5.7 billion profit over those eight years.

The key is to sell commodities to a related entity in Singapore at say $50 tonne. The company in Singapore can then sell the ore to clients at say the market price of $70 tonne. Profit gets registered in Singapore, not in Australia, and the company tax rate in Singapore is a lot lower, around 15 per cent. So companies can effectively transfer the profit to those lower taxing destinations.

While the ATO accepts there are legitimate business activities being conducted in Singapore (shipping, insurance, and so-called marketing), the question is whether the profits attributable to the Singapore hubs are reasonable. BHP Billiton and Rio Tinto have revealed through the Senate inquiry they have been issued amended assessments for tax, interest and penalties of $522 million and $107 million respectively.

In BHP’s case, its Singapore hub is owned 58 per cent by BHP Australia, and 42 per cent by BHP UK. Under Australian laws, profits on the 58 per cent are attributed back to Australia, and subject to company tax at 30 per cent. That has resulted in BHP paying $945 million of Australian tax on the Singapore profits from 2006 to 2014. But profits on the 42 per cent of the Singapore marketing hub that are owned by BHP UK escape the Australian tax net, so the more profits apportioned to Singapore, the less tax paid in Australia.

The reason why BHP Billiton and Rio Tinto get an Australian tax advantage from the Singapore hubs is because of their dual listing on the London and Australian stock exchanges.
That allows them to put ownership of the Singapore hub partly in the hands of their UK related companies.

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