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BHP Settles Australian Transfer Pricing Dispute for $386 Million

Posted on Nov. 26, 2018

The BHP Billiton Group has settled a long-running transfer pricing dispute with the Australian Taxation Office (ATO) over the mining company’s Singapore marketing hub by agreeing to pay AUD 529 million (around $386 million).

BHP said November 19 that the settlement, which covers the years 2003 through 2018, includes no admission of tax avoidance on its part. The company has already paid AUD 328 million of the settlement amount. BHP said that it had been issued tax assessments totaling AUD 1.04 billion, including interest and penalties, for the period 2003 through 2013 related to income from the sale of Australian commodities to the company’s marketing arm in Singapore.

BHP said that in July 2019 BHP Group Ltd. will increase its stake in BHP Billiton Marketing AG — the main company carrying out BHP’s marketing activities in Singapore — from 58 percent to 100 percent. The move will result in all profits generated in Singapore that are related to Australian assets owned by BHP Group Ltd. becoming subject to Australian tax, the company said. The group’s marketing operations in Singapore will continue to be based there, BHP said.

Following the change in ownership, BHP said the group’s Singapore marketing arrangements will fall within the ATO’s “low risk” or “green zone” ratings for offshore marketing hubs under guidelines finalized by the tax agency in January 2017.

“The settlement provides clarity for BHP and the ATO in relation to how taxes will be assessed and paid on the sale of Australian commodities,” said BHP CFO Peter Beaven. “That certainty is good for business and for Australia.”

The ATO focused more on the restructuring of the ownership of BHP Billiton Marketing, instead of the additional tax revenue it will receive from the settlement. “The more important announcement is that, going forward, BHP is coming within the ATO’s ‘green zone’ for marketing hubs, and all the profits from their sale of Australian-owned commodities will be taxed in Australia,” said ATO Deputy Commissioner Jeremy Hirschhorn. “This is a landmark and precedential development in the execution of our marketing hubs strategy and sends a strong signal to other industry participants.”

BHP’s use of a Singapore-based marketing hub was the focus of an Australian Senate hearing in 2015. The Senate Economics References Committee was looking into complaints of tax avoidance by multinational companies, with a special focus on the use of affiliated marketing organizations in low-tax jurisdictions such as Singapore.

At least two other mining companies have had disputes with the ATO over offshore marketing hubs. In April 2017, Rio Tinto said it had been assessed AUD 447 million regarding the group’s transfer pricing arrangements with its commercial center in Singapore. Later that year, Glencore PLC appealed assessments totaling AUD 241 million for allegedly diverting profits to a Swiss affiliate between 2007 and 2009.

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