BHP/Rio probed for state agreement breach, page-17

Rio/BHP will be trying to shut down any talk of an inquiry for the simple fact that it will open up their cost base to the public. The details of their cost base is something they have jealously guarded as they do not want consumers to know it and so put pressure on them to reduce contract prices even lower.

Any number of studies (by analysts, academics, finance houses, etc) are available to understand the dynamics of the IO market, so in that sense an inquiry really is a waste of public funds. On the other hand, if there are real concerns from the juniors, they should take them to the ACCC. After all, that's the body charged with investigating uncompetitive behaviour. Twiggy's politicisation of this is a disgrace: any other similar occurrence (ie, politicians bringing concerns up in parliament for their friends) is quite rightly jumped on quickly as an undue hindrance of the independence of our government.

Of course the biggest joke about this is that "BHP and Rio's Singapore marketing hubs" were "exposed by the Federal government's tax inquiry last month"! What absolute nonsense. I know that RIO, for one, was engaged with the ATO over about two years to set up their Singapore hub. The ATO knew exactly what RIO was doing and set down the guidelines to do it. This is a classic example of our elected officials not knowing how the machinery of bureaucracy works (taints of "Yes, Prime Minister"!).

The notion that BHP and/or RIO may be using transfer pricing as a tool to reduce Royalties is certainly worrying and, if proved true, will damn those two companies. I suspect, however that this is not happening to the extent suggested as the State Agreement has very clear clauses on transfer and "arm's length" pricing. The Singapore trading hubs were set up to reduce Sales & Marketing costs. It just so happens that S&M is one of the (few) allowed price reductions for setting the royalty-rated IOP. It may be that the S&M costs should be disallowed because they occur in a foreign jurisdiction and that may be the basis for a state inquiry. Only time will tell. In the meantime, some of the allegations put forward in this forum, and by some shock jocks, are pure hysteria and more at home at a good ol' witch burning than what passes for reasonable discourse.