Alcoa faces $212m claim from Australian Tax Office

The ATO lodged a claim late last year saying it believed Alcoa had underpaid tax on the sales of alumina.

Alcoa’s faces a new tax claim from the ATO. Picture: Getty Images

Global aluminium giant Alcoa has become the latest resources company to be hit with a tax bill over pricing of its core products, with the Australian Tax Office landing a $212m bill on historic alumina sales.

Like BHP and Rio Tinto before it, Alcoa is in the ATO’s sights over the pricing of commodity sales, with the US-headquartered alumina and aluminium company telling shareholders late on Friday it faced a tax bill “related to the pricing of certain historic third-party alumina sales”.

The disclosure is contained within Alcoa’s US annual financial report, filed late on Friday.

It says the ATO lodged a statement of audit position before December, saying it believed Alcoa of Australia, the company’s local operating subsidiary, had underpaid tax on the sales of alumina.

Alcoa only produces alumina in Western Australia, where it owns two bauxite mines and three alumina refineries in partnership with ASX-listed Alumina Ltd.

Alcoa also operates the Portland aluminium smelter in Victoria, where China’s CITIC and Japanese conglomerate Marubeni each hold a 22.5 per cent stake. Portland is under threat of closure by the middle of 2021 if a new power contract cannot be negotiated.

The company said it has disputed the claim and is awaiting the results of an ATO internal review of the audit. If the review confirms the ATO’s initial position, Alcoa will be required to pay half of the claim upfront as it fights the matter through the courts.

“Alcoa of Australia stands by its tax returns applicable to the period under review and disagrees with the position outlined by the ATO. AoA intends to exercise the statutory rights available to it to dispute the ATO’s position,” said a spokeswoman.

“AoA has a long and exemplary history of engaging with the ATO in an open and transparent manner. Alcoa always cooperates with the ATO and prides itself on being a model taxpayer.”

It is not clear what aspect of the Alcoa’s alumina pricing the ATO is contesting, but over the last few years the tax office has been closely scrutinising transactions between the Australian and offshore arms of multinational companies for transfer-pricing arrangements – transactions with a related corporate entity in a low tax jurisdiction, sometimes used to shift profits out of Australia and avoid local taxes.

In 2018 BHP paid $529m, without admitting any fault, to settle a tax dispute with the ATO over claims it had underpaid taxes on iron ore exports between 2003 and 2018 through use of its Singapore marketing arm.

The ATO is also pursuing Rio Tinto for $447m in a similar tax claim, and has been battling energy giant Shell in the courts over $755m in disputed deductions for its stake in the $30bn Browse project.

The 2017 tax transparency report of Alcoa of Australia, the last published by Alcoa’s Australian arm, notes that about 35 per cent of its $4.5bn in revenue came from selling alumina to other parts of Alcoa’s global operations, some of which was then directly on-sold to third parties.

In the report Alcoa said the sales were made on an “arm’s length basis” and its related-party transactions had been reviewed by the ATO as part of a 2012 annual compliance arrangement signed between Alcoa and the tax office.

According to its 2019 annual financial accounts Alcoa posted a $US1.1bn loss for the year, from a $US250m profit in 2018, as alumina and aluminium prices tumbled.