BHP, RIO 'not acting in Australia's best interests', page-275

No mention of FMG, BHP/RIO telling porkies

ATO's Chris Jordan contests BHP, Rio, Apple, Microsoft, Google on tax
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Tax commissioner Chris Jordan said all of the companies are under audit. Christopher Pearce
Tax commissioner Chris Jordan has challenged parliamentary testimony by senior executives from BHP Billiton, Rio Tinto, Apple, Microsoft and Google, telling a Senate committee investigating corporate tax avoidance their claims they are not profit shifting should not be taken at face value.

Mr Jordan revealed that Rio Tinto had paid more than $100 million to settle a tax bill on initial profits from its Singapore operations, which it set up in 2007 to buy minerals from Rio Australia and sell on behalf of the company, generating big profits in the low-tax city state. He said BHP Billiton was disputing a bill covering the years before 2010 of "multiple hundreds of millions of dollars".

He said the Tax Office was "vigorously testing" Rio Tinto and BHP Billiton's tax payments in ongoing audits covering the last five years, when the marketing hubs reported the bulk of their profits.

Singapore records obtained by The Australian Financial Review show that since 2010 BHP Billiton has earned $US4 billion ($5 billion) in Singapore profits, while Rio has reported $US3.7 billion.

Mr Jordan, who was recalled to the committee following appearances by some of Australia's biggest businesses, made an unprecedented decision to reveal previously confidential information about the tax disputes of those companies. The disclosure and his often-scathing comments suggests a hardening in the government's attitude to international tax avoidance. He limited his comments on Wednesday, to correcting statements made in the inquiry by the companies.

Small settlement no identified
Rio Tinto told the inquiry on April 10 that it had made a relatively small tax settlement on its Singapore operations, though this was not identified in its accounts.

"Paying more than $100 million may not be material to Rio Tinto, but it is material to the Tax Office," Mr Jordan said.

When Senator Nick Xenophon asked BHP Billiton's president for corporate affairs, Tony Cudmore, on April 10, if at any point since 2006 BHP had received an adverse tax bill from the tax office, Mr Cudmore replied: "I do not personally have that information."

"BHP stated that they are in the early stages of an audit of their Singapore hub," Mr Jordan said. "We confirm that there is an open audit in relation to the past five years or so.

"To complete the picture, we would also note that BHP is still currently disputing amended assessments in the order of multiple hundreds of millions of dollars arising from the previous hub audit."

BHP Billiton has until the end of Friday to answer questions as to whether it had received a position statement from the ATO and how much the prospective tax demand was.

Executives to be recalled
Greens Leader Christine Milne said on the basis of Mr Jordan's comments she would ask the committee to recall executives from BHP Billiton, Rio Tinto, Apple, Microsoft and Google for further questioning.

Mr Jordan said all of the corporates had given assurances they were not profit shifting but confirmed they were being audited.

"We do not accept all these statements at face value," he said.

With Apple, he said the audit was contesting the arms-length pricing paid by the Australian operation to other Apple companies.

"To paint a picture, media reports have suggested Apple had an effective tax rate of 1.9 per cent on $US36 billion in international earnings in 2012," Mr Jordan said.

He noted that Microsoft had told the inquiry most of its Australian sourced income was accounted for in Singapore.

"In one sense it's right, that the money is in the [Singapore] account," he said. "For a moment."

It then is moved to other tax havens as intra-company costs.

Microsoft said it reported $2 billion in Australia-sourced income in Singapore, while $100 million in services was reported in Australia.

Appropriate split focus
"The ATO audit is trying to determine if this is an appropriate split of revenue. We further understand that much of their Singapore profits are paid out as technology fees and end up in Microsoft Bermuda."

He said Google had stated that its Australian revenue from advertising is booked in Singapore and therefore, tax paid in Singapore.

"Whilst some tax is paid in Singapore, we believe it is a very small amount as the revenue booked in Singapore is moved to a secrecy haven through a series of licensing payments," he said.

The majority of profits made in Australia ended up in Bermuda where no tax was paid.

Referring to articles in The Australian Financial Review, Mr Jordan said: "This scenario was also recently covered in media reports, and it would be our view, that these reports were on the money – in terms of the structures and arrangements that we see."

He welcomed the openness of Rio Tinto Australia chief executive Phil Edmands in revealing that Rio earned $US719 million in Singapore last year.

"This is the very question we are robustly testing," Mr Jordan said.

The Tax Office was contesting whether the work done by the Singapore staff in marketing and other services was valued at $US719 million.

Mr Jordan was scathing on selective use of effective tax rates that companies quoted to assert that they paid high rates of tax, disguising their "historically aggressive tax position".

Mr Jordan offered to provide an alternative methodology to the committee to measure effective tax rates.