Mining giant BHP Billiton has admitted defeat in a long-running tax standoff with Australian authorities over a ruling that it owed money over a 15-year span for its dealings in Singapore.
The dispute centered around whether BHP had to pay taxes on a subsidiary based in the city state of Singapore, given that its account holdings were in Australia.
BHP has a 58% stake in this subsidiary, known as BHP Billiton Marketing. The Australian Taxation Office (ATO) claimed that the company was liable to pay tax in both Singapore and Australia because the subsidiary was marketing Australian products.
The two sides have agreed that BHP owes AU$529m in taxes, and the company said that it has already paid $AU328m. This news instantly buoyed the BHP share price, which rose today as details of the settlement surfaced. The development should calm the lengthy disagreement and bring some stability to BHP investors, now that they know where the company stands.
At this stage, the settlement agreement means that BHP has not had to admit to any wrongdoing such as deliberately avoiding tax, which may go some way to explaining the boost in its share price. The company put the dispute down to a fundamental disagreement of the interpretation of legislation, which means that its record will stay clean.
As a consequence of BHP’s actions, its marketing arm will have to become a fully-owned company, and it will have to purchase the remaining 42% share. This will put the company in ATO’s ‘green zone’ and make it fully liable to pay Australian tax’.
Peter Beaven, BHP’s CFO, said: ‘This is an important agreement, and we are pleased to resolve this longstanding matter.’
Calling the news a ‘certainty’ that will be ‘good for business and for Australia,’ Beaven added that the company has greater clarity going forward for how it needs to operate and how it can avoid falling on the wrong side of the regulator in the future.
Meanwhile, the ATO said that this settlement was ‘landmark and precedential’ in scale, noting that because the mining industry is crucial to Australia, it needs to ensure that ‘exporters of Australian commodities, whether iron ore, coal, gas or other commodities, pay the correct tax in Australia on their profits.’
This may be just one of many cases that reaches a settlement, as the ATO confirmed that it is in talks with other companies that may be operating similar schemes, including Rio Tinto and Google. The precedent set by this case may well give the ATO greater scope to cite it as a framework within which all multi-national companies need to comply.
Many of these issues involve marketing hubs, which are often in different locations than production sites. By looking to bring these hubs more in line with their parent companies, the ATO hopes that it can stop so much money going overseas when the Australian authorities have the right to collect it.
The ATO set out a set of regulatory frameworks in 2017 to try and crack down on goods and services taxed overseas instead of at home, where the actual products are based. It said that in an ideal world, it would not need to proceed to litigation, which it considers a practical last resort. It proved this in the BHP case.