BHP Billiton agrees A$500m Australian transfer pricing settlement

The Anglo-Australian mining, metals and petroleum multinational BHP Billiton has reached an agreement with the Australian Taxation Office (ATO) to settle a long-running transfer pricing dispute

The dispute centred on the amount of Australian tax payable as a result of the sale of BHP’s Australian commodities to BHP’s Singapore marketing business.

The ATO had issued amended assessments for A$661m primary tax (A$1bn including interest and penalties) for the income years 2003 to 2013. 

As part of the settlement, BHP will now pay a total of approximately A$529m in additional taxes for the income years 2003 to 2018. BHP says it has already paid A$328m of this amount, following receipt of amended tax assessments.

In addition, from July 2019, BHP Group Ltd will increase its ownership of BHP Billiton Marketing, which is the main company conducting BHP’s Singapore marketing business, from 58% to 100%.

This change in ownership will result in all profits made in Singapore in relation to the Australian assets owned by BHP Group Ltd being fully subject to Australian tax.

Peter Beaven, BHP chief financial officer, said: ‘This is an important agreement and we are pleased to resolve this longstanding matter.

‘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. That certainty is good for business and for Australia.’

ATO deputy commissioner Jeremy Hirschhorn said the settlement marked an important development in the tax authority’s strategy for handling marketing hubs, which typically provide marketing and sales functions for goods or commodities that are produced in Australia and sold offshore.

Last year the ATO set out a risk framework in relation to transfer pricing issues for marketing hubs, in a bid to ensure profits generated in Australia, are taxed in Australia

Hirschhorn said: ‘BHP has announced that the ATO’s actions have secured approximately A$500m for the Australian taxpayer for past years, over and above the tax returns originally filed.

‘However, 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.

‘This is a landmark and precedential development in the execution of our marketing hubs strategy, and sends a strong signal to other industry participants.’

Hirschhorn said the ATO is increasingly using guidance materials to set out what it considers to be acceptable behaviour, particularly in the areas of transfer pricing and tax planning, in order to enable taxpayers to identify ‘safe zones’ for compliance.

He said part of the reason for agreeing a settlement with BHP was to ‘lock in’ future compliance outcomes based on these ‘safe zones’ to secure revenue and create certainty for the future.

Report by Pat Sweet

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