On 19.11.18, both BHP and the ATO announced that they had settled their long-running dispute on the proper tax treatment of the price at which the Australian company sold it’s ore to the Singapore ‘marketing hub’ (in other words, a transfer pricing issue).
They key matters disclosed about the settlement, are as follows (remembering that the details are otherwise confidential).
- The disputes resolved the 2003 – 2018 years.
- The settlement involved BHP paying A$529 million, of which $328m had already been paid.
- This compared to an additional $661 million of additional tax for the 2003 to 2103 (by the issue of amended assessments for those years) which had grown to $1,042 billion, with interest and penalties.
- In its media release, BHP reminded readers that this extra $529m was on top of more than A$75 billion in Australian taxes and royalties.
- BHP will continue to operate its Singapore marketing hub, which it says gives it access to a highly skilled global trading centre and proximity to its customers.
- The settlement not only provides certainty for the years in dispute, but for the future as well.
- One aspect is that from July 2019, BHP Group Limited will increase its ownership of BHP Billiton Marketing AG, which is the main company conducting BHP’s Singapore marketing business, from 58 per cent to 100 per cent. This will result in all its profits, made in Singapore, being fully subject to Australian taxes.
- Importantly, also, BHP’s Singapore marketing arrangements will be managed within the “low risk” or “green zone”, for the transfer pricing issues in using offshore marketing hubs, as set out in the ATO’s Practical Compliance Guideline PCG 2017/1.
- The ATO’s statement made much of this future ‘green zone’ compliance – both the existence of this practical compliance guideline facility and the fact that BHP was agreeing to fall into line.
- The ATO also felt compelled to say that this was not favourable treatment of the ‘big end of town’ and that it has employed 4 retired Federal Court judges to review the ATO’s settlements (to give the public confidence in settlements that remain confidential).
- The ATO also claimed that this was an important precedent, in the marketing hubs space and would ‘send a strong signal to other industry participants’.
CPD questions (answers available)
- Was the dispute about transfer pricing issues associated with BHP’s Singapore marketing hub?
- What years did it settle?
- How much extra did it pay, for those years?
- If not settled, what would the total, for the 2003 – 2013 years have been?
- What will happen to BHP’s ownership of the Singapore hub, which it owns with it’s ‘dual listed’ counterpart: Billiton.
- What will be the effect of this, from an Australian tax point of view?
- BHP has agreed to conduct its Singapore marketing hub, in the future, in what zone of the ATO’s transfer pricing guideline, for marketing hubs?