Rio Tinto Warns Australia at Risk of Being ‘Left Behind’ on Tax

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By Murray Griffin

Rio Tinto has warned that other nations will “leave Australia behind” if it doesn’t cut its tax rate, while at the same time noting that it will pay only half of a recent government assessment stemming from a transfer pricing dispute.

The mining giant, one of Australia’s largest companies, released its seventh annual “Taxes Paid” report April 10, revealing that it handed over total corporate income tax in the 2016 calendar year of $1.7 billion, including the group’s share of tax payments of non-controlled entities of $228 million.

The Australian government wants to gradually reduce the corporate tax rate for all companies to 25 percent, although parliament blocked its efforts to legislate a timetable to cut taxes for businesses with annual revenue above A$50 billion ($37 billion), in a March 31 vote.

The report says Rio Tinto supports the Australian government’s policy to reduce the corporate tax rate and goes on to warn that if Australia “remains with a 30 percent corporate tax rate, this will come at a cost to investment and jobs, as other nations leave Australia behind.”

The company said in its report that it’s too early to comment on the potential impact on the company of possible tax changes in the U.S.

However, “a significant lowering of the corporate tax rate and simplification of the tax code would make the U.S. a more attractive investment location,” its report says.

Singapore Dispute, APAs

The report provides more details on the company’s recently announced transfer pricing dispute with the Australian Taxation Office over its Singapore hub, in which the ATO has demanded an additional A$447 million.

The company disagrees with this assessment. “Rio Tinto intends to challenge the amended assessments. In the meantime, Rio Tinto will pay 50 per cent of the total amount assessed,” the group states.

Rio Tinto said the A$447 comprises a tax component of A$379 million, plus interest of A$68 million.

All transactions with the company’s Singaporean entities are undertaken on an arm’s-length basis and priced in accordance with OECD guidelines and legal requirements, the report states.

“While we are satisfied these transactions align with tax requirements, differences of interpretation between companies and tax authorities can occur,” Rio says.

Accordingly, to reduce the risk of dispute, the company enters into advance pricing agreements to “agree the price charged with tax authorities.”

“We have entered into APAs with the Australian Tax Office (ATO), Canada Revenue Agency and Inland Revenue Authority of Singapore in relation to some of the transactions involving the Singapore commercial centre. We are engaged in discussions with the ATO, and the ATO is reviewing its position in relation to the transfer pricing of marketing and procurement services,” the company says.

Effective Group Tax Rate

According to the report, the group effective corporate income tax rate of 22 percent is reflective of the statutory corporate income tax rates in the countries in which it operates.

Nearly all the group’s income tax was paid in Australia, where it has most of its assets, and which accounted for $1.3 billion of income tax payments.

Consistent with 2015, income tax accounted for 33 percent of all types of taxes paid by the group, followed by royalty payments (27 percent).

Last year’s report for the first time included an analysis of taxes paid on an extractive project-by-project basis. However, that analysis has been dropped from this year’s version.

Rio Tinto paid $5.4 billion in tax, in total, comprising 33 percent in corporate income tax and 27 percent in government royalties. Payroll taxes collected on behalf of employees and paid to the government, comprised 26 percent while employer payroll taxes were seven percent and a further seven percent in tax was due to customs duties, property taxes and other tax payments.

Transparent Tax Reporting

Rio Tinto is a signatory to two initiatives designed to promote tax transparency, the international Extractive Industries Transparency Initiative and the Australian Voluntary Tax Transparency Code.

However, while it is supportive of transparent tax reporting efforts, it is concerned over increasing reporting requirements imposed upon multinational companies.

“We are concerned about the proliferation of such new initiatives. Potentially we will face multiple and inconsistent reporting requirements, and will incur significant additional costs in complying with these obligations, often with little or no added public benefit,” Rio’s report states.

To contact the reporter on this story: Murray Griffin in Melbourne at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

For More Information

Rio Tinto's "Taxes paid in 2016" report is at http://www.riotinto.com/documents/RT_taxes_paid_in_2016.pdf

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