BHP loses $125m ‘marketing hub’ tax case
BHP has lost its High Court appeal in a $125m tax case over its controversial Singapore marketing hub.
BHP has lost its High Court appeal in a $US87m ($125m) tax case over its controversial Singapore marketing hub, with the High Court rejecting the company’s argument its British and Australian arms are not “associates” for the purposes of tax laws.
The decision brings to an end the Australian Taxation Office’s disputes with BHP over the use of its Singapore marketing arm, with BHP shelling out more than $600m in additional tax payments over the last few years.
The latest ATO win was over money earned by the British side of BHP from 2006 for selling commodities mined at operations it owns in Australia – now largely Hunter Valley coal – by the group’s marketing hub in Singapore.
Under BHP’s dual-listed company (DLC) structure, the legacy of its takeover of Billiton in 2001, it retained two listed arms of the company – BHP Plc in the UK and BHP Ltd in Australia – which each own assets separately.
The ATO argued its so-called “top up tax” under the controlled foreign companies rules, designed to help prevent profit shifting by multinationals, applies to the British arm’s profits as well.
Even though they share common management, directors and until recently joint ownership of the Singaporean marketing hub companies, BHP argued its separate arms are not “associates” for the purposes of the law and asset no controlling
BHP says it has always agreed that under controlled foreign corporation rules it must pay Australian tax on the 58 per cent share of the income the Australian arm got from Singapore for sales of Plc subsidiaries.
But it baulked whether it must also pay tax on the share of the income the British arm got from its sales of Australian goods through Singapore.
The company won the first round of the battle in the Administrative Appeals Tribunal in 2018, but lost a subsequent ATO appeal in the Federal Court.
On Wednesday, the High Court rejected BHP’s arguments, ruling the two arms “sufficiently influenced” each other to be associates.
“In June 2001, the DLC Structure Sharing Agreement, including the DLC Structure Principles, provided that Ltd and Plc, as ‘combined businesses’ and a ‘single unified economic entity’, through common boards of directors and a unified senior executive management, would operate then and in the future in that manner and consistently with the terms of that agreement. For that reason alone, Ltd was "sufficiently influenced" by Plc,” the High Court judgment says.
Wednesday’s High Court ruling brings to a close BHP’s running battles with the tax office over its use of the Singapore marketing hub.
In late 2018 BHP paid $529m to settle allegations it had engaged in “transfer pricing” by selling its products to its Singaporean market hub, which then sold them to customers with a mark-up.
BHP did not admit it had engaged in any tax avoidance as part of the resolution.
A BHP spokesman on Wednesday said: “This decision provides clarity on the interpretation of a technical area of Australian federal income tax rules.
“It means that BHP will pay a total of approximately $US87 million in additional taxes for the income years 2006 to 2018.
“BHP is one of the largest contributors to the Australian economy, having contributed approximately $71bn in taxes and royalties over the past 10 years. The additional taxes that BHP will pay as a result of this decision represent less than 0.2 per cent of this contribution.”
It agreed its Australian arm would take full ownership of the Singaporean marketing companies as part of the settlement, and that all profits from the hub would be “fully subject to Australian tax”.
BHP has also settled disputes associated with its marketing arm over the payment of royalties to the WA and Queensland governments.