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Economics References Committee
Corporate tax avoidance

CUDMORE, Mr Tony, President, Corporate Affairs, BHP Billiton

EDMANDS, Mr Phil, Managing Director, Rio Tinto Australia

HUGHES, Mr Marcus, Group Manager, Taxation, Fortescue Metals Group Limited

MICHIE, Ms Jane, Head of Group Tax, BHP Billiton

PEARCE, Mr Stephen, Chief Financial Officer, Fortescue Metals Group Limited

WOLFF, Ms Anne-Maree, General Manager, Taxation, Asia Pacific, Rio Tinto

CHAIR: Welcome. Before I ask for your opening statements, I would like to state that all three of your firms have supplied quite detailed submissions to this inquiry. We appreciate that. We understand that these things take a lot of time and money to put together and we appreciate that. I also want to stress that all three companies are here as guests, on invitation by the committee. You are appearing here voluntarily as guests of the committee and we thank you for the facilitation. We note that almost all of you have travelled in one capacity or another to be able to be here, especially our friends who just arrived from Fortescue in Western Australia on a Friday afternoon. Any excuse to spend a weekend in Melbourne, I suppose! Mr Edmands, do you have an opening statement? And do you wish to table the report on taxation? I think it was part of your submission anyway. If not, we will accept it as formal correspondence to the committee.

Mr Edmands : Thank you very much. I would like to make a few comments. That Taxes paid report is the 2014 report—the new one. Last year's is the one that was with the submission, which is why we table it.

CHAIR: Fantastic. We are conscious of time. I suspect we will be running a little bit over time; we do not want to run too far over. There will be plenty of questions and some of what you want to say in your opening remarks will be covered in questions. Mr Edmands, I note that, prior to the beginning of this inquiry, your team at Rio Tinto did make this available to all members of federal parliament. I have to say that, as someone who has been dealing with this issue for a period of time, the level of transparency in this document probably goes further than any other document I have seen from a company of your size. That should be commended.

Mr Edmands : Thank you very much, Chair. My comments are only very brief. As an ASX Australian listed company, we do recognise the importance of public trust and accountability in the tax system. Our overall philosophy regarding tax is that policy makers need to make the laws, but we will apply them in conformity with our global code of business conduct in the way we work. So our policy is to comply with both the letter and the spirit of the law. We take up our legitimate tax entitlements, but we do not undertake aggressive or non-commercial structuring to avoid paying tax. We do pay tax where it is properly due. Allied to this, we believe in transparency, so that the community and policy makers have appropriate insight into whether the system is working and they can make changes to it if it is not. As part of our commitment to transparency, as we have just discussed, last month we released our fifth annual global taxes paid report, which lists all our tax payments over $1 million around the world. As to the taxes we pay, in 2014 we paid US$7.1 billion in taxes and royalties globally. Of that, about 80 per cent was paid in Australia. So, in Australia, we paid A$6.2 billion in taxes and royalties, and that reflects the level of our activity in Australia. Furthermore, since we have published our first taxes report, which was in 2010, we have contributed more than A$32 billion in taxes and royalties in Australia.

CHAIR: How much tax did you pay in Australia last year?

Mr Edmands : The amount last year in taxes and royalties was $6.2 billion. Do you want to know corporate tax?


Mr Edmands : It was A$3.6 billion.

CHAIR: I will just pause you there for a second. Mr Cudmore, how much corporate tax did you pay in Australia?

Mr Cudmore : We paid $8.7 billion in corporate income tax and royalties.

CHAIR: Are our friends from Fortescue here?

Mr Pearce : We paid just under $1 billion in corporate income tax and another $800-plus million in state government royalties.

CHAIR: We are talking round about $882 million.

Mr Pearce : Correct.

CHAIR: So we are talking about $18 billion of taxation at the table.

Mr Pearce : Correct.

Senator CANAVAN: That is including royalties. Your $2 billion was $1 billion each, basically.

Mr Edmands : As to corporate tax rates, specifically—

Senator CANAVAN: You could build your subs just there from these guys.

CHAIR: Well, hopefully, if they were building them in Adelaide that would be a whole different issue, but we can discuss that if you want to. I am sorry, Mr Edmands.

Mr Edmands : Australian effective corporate tax rate for 2014 was a little bit above 30 per cent. Global effective tax rate for 2014 was 28.4 per cent, but that is a blended average of our effective corporate tax rates across various jurisdictions that apply to our businesses, and the fact that our group effective corporate tax rate is high demonstrates that we are not channelling profits through tax havens, otherwise you would expect that to be significantly lower. We are committed to compliance. We have recently agreed a two-year extension to our voluntary annual compliance arrangement with the ATO, under which we disclose on a real-time basis all major transactions, including offshore related party transactions. We do believe that we are the only mining company that has an ACA in relation to income tax matters.

Contrary to recent suggestions, we are not being chased by the ATO for billions of dollars in relation to our single core commercial centre. That centre undertakes sophisticated shipping procurement and marketing activities for the group globally. It charges an arm's length commercial fee for those activities that it undertakes. But, specifically, as a result of those activities, the price received and the profits earned by our Australian business—the sale, for instance, of iron ore—is significantly increased, and it is increased by more than the fee charged for those services. The critical point in relation to our single core commercial centre, then, is that it was not set up to avoid tax. The ATO and other foreign tax authorities have accepted the commerciality of the activities undertaken by that centre. We have more than 300 people employed in Singapore, as I said, charging an arm's length fee, and that is effectively money earned in Singapore because of the activities taken there. That is all I wanted to say.

Mr Cudmore : Thank you very much for this opportunity. BHP Billiton is a proudly Australian company with global operations, including the dual listings of BHP Billiton Ltd in Australia and BHP Billiton Plc in the United Kingdom. BHP Billiton is the largest taxpayer in Australia, having paid more than A$8.7 billion in taxes and royalties in Australia last year, which equates to an effective tax rate of over 45 per cent. We also make a significant contribution more broadly to the Australian economy. Last year, this equated to around AU$27 billion, including payments to suppliers, wages, employee benefits, dividends, taxes and royalties. We also invested over $260 million in community expenditure globally, with half of this investment in Australia.

The headquarters of our global business units are located near our assets or our customers. That is why our iron ore headquarters are in Perth, our coal headquarters are in Brisbane, our copper headquarters are in Santiago, our petroleum headquarters are in Houston and our marketing headquarters are in Singapore. Our marketing organisation generates significant value for BHP Billiton and the Australian economy by obtaining the best price for our export commodities. The best place to do this is in Singapore with its access to a highly skilled marketing workforce and proximity to our Asian customers, who account for 65 per cent of our revenue. BHP Billiton employs 400 people in its marketing and freight team in Singapore. The team's activities are extensive—managing the physical product and distribution from the time the commodity is in saleable form through to cash collection.

All of the value of production of our commodities here in Australia is subject to Australian tax. This is because the commodities are sold by our Australian companies to the marketing organisation on arms-length terms. In addition, a significant proportion of profits made by the marketing organisation from selling Australian commodities are subject to Australian tax. This means that when we sell Australian commodities to a customer nearly 100 per cent of those sale proceeds are captured within the Australian tax net.

Senator WHISH-WILSON: Does that relate to your Singapore business as well? If you are trading out of Singapore and you need marketing, do you allocate any profit to your Singapore business or does it all come under your Australian operations?

Mr Cudmore : The profit in Singapore is subject to Australian tax on the BHP Billiton Ltd side of that organisation.

I would like to note that we are very committed to transparency. The ATO has full visibility of BHP Billiton's operations, including our marketing operations. We are a founding member of the Extractive Industries Transparency Initiative and an active member of its international board. We joined EITI as a founding member in 2002. We voluntarily publish tax and royalty payments on a country-by-country basis in our annual sustainability report. Based on Transparency International's most recent assessment, BHP Billiton ranks as the most transparent mining company in the world and the fourth most transparent company of any in the world. At the same time, it is important to note that we do not publicly disclose commercially sensitive information that would undermine our competitive position in the marketplace.

As we engage in debate on issues around corporate tax, we do think it is important that we retain a focus on the surest means of strengthening Australia's tax base—and that is through the long-term sustainable growth of the Australian economy, including in critical sectors such as resources. Thank you.

Mr Pearce : Fortescue are a proud Australian company and, since our first production in 2008, we have grown to be the fourth largest iron ore producer in the world. We are currently shipping I65 million tonnes per annum from Western Australia's Pilbara region. We welcome the opportunity to be part of this discussion with senators. We support the Australian government's efforts to create a fair and efficient tax system, and we take our tax obligations incredibly seriously. We are committed to working openly and collaboratively with the Australian Taxation Office.

We acknowledge our role as a company in Australia's community and the importance of paying our fair share of tax as part of that and, importantly, as is one part of that, because there are many other things the company does across the community. We have grown into a substantial company since our first production. Since then we have paid $4.5 billion in corporate income taxes and state government royalties. We are particularly proud of our relationship with the Australian Taxation Office, with which we do have a cooperative and transparent working relationship. Obviously with the majority of our operations in Australia, we have a very simple and clean corporate and tax structure across the group. We do have an official low-risk rating from the Australian Taxation Office.

CHAIR: Wouldn't you automatically fall into that category of low risk but high significance—the Q2, I think it is called?

Mr Pearce : Correct. Exactly.

CHAIR: Everyone would be Q2, I assume.

Ms Michie : …fair share of tax as part of that and, importantly, as one part…

Mr Pearce : Our effective tax rate has been within a whisker of 30 per cent across all of the recent years. We do have a number of foreign subsidiaries that support our commercial operations where required but, as I say, we are largely Australian-dominated. Fortescue does aspire to be a good corporate citizen, and it does go beyond just our fair share of tax in terms of the communities that we work within, particularly the Indigenous engagement employment that we have, the business development across those Indigenous businesses, the environmental initiatives and water management, particularly in that sensitive part of Australia. In closing, we are proud of our low risk tax profile. We do see it as important that major companies in Australia do pay their fair share of tax. As I say, we have a very simple corporate structure and we do welcome the broader discussion that is now starting across the Australian community in terms of tax structure.

CHAIR: Fortescue does not have a marketing hub in Singapore, does it?

Mr Pearce : No, we do not have a marketing hub. We have a very small shipping office located in Singapore.

CHAIR: Obviously, you knew you were coming here today. You have seen the media reports. I want to get my head around this sort of thing. Both BHP and Rio have a marketing and other function business based out of Singapore. Correct?

Mr Cudmore : Correct.

CHAIR: The accusation is that there is a combined figure of—I am not sure where the combined figure has come from—$2.6 billion of profit that has been allocated to that marketing hub. That is the allegation in the paper, as you have read it. You said something before, Mr Cudmore, and I do not know whether this is public information or information you are not prepared to share. I am not quite sure what is and is not commercial-in-confidence in your business. Is there a figure for how much profit has been allocated to the Singapore operation?

Mr Cudmore : I do not have that figure. Could I explain the way our system works. I mentioned in my testimony that almost 100 per cent of the sales revenue from our Australian commodities is subject to the Australian tax net. That is via the transfer pricing, the arms-length pricing process that we have when the commodities are produced and handed to the marketing organisation to market. The marketing organisation provides analysis and services; the profit from the marketing organisation that is due to the BHP Billiton Ltd side of the organisation is subject to Australian top-up tax as part of the controlled foreign company rules. When you add all that up, close to 100 per cent of the revenue from the sale of those products comes back into the Australian tax net.

CHAIR: Thank you for that. That is good information, but it was not really the answer to the question. The question was: how much profit has been allocated to the Singapore operation?

Mr Cudmore : Can you help me to understand what you mean by 'allocated'?

CHAIR: I will put the accusation to both of you so you can respond and put your two cents into it. I am sure other senators will have more detailed questions to this effect. The accusation is that there is a marketing hub that has been set up in a low-tax environment of Singapore which, while on paper it has a tax rate of 17 per cent, companies are able to negotiate even lower tax rates. The allegation is that an agreement for 2½ per cent has been agreed between your companies and Singapore—I am sure you can talk to whether that is true or not—and that money has been moved in a manner to minimise your tax liability. A figure of $750 million has been reported as having been lost as a result of those transactions.

Senator WHISH-WILSON: To put it another way: you are value-adding through your operations in Singapore, so what are your consolidated earnings that you have in your group accounts from your Singapore operation?

Mr Cudmore : We do value-add through Singapore, but that is where the marketing and analysis function is undertaken. The vast majority of the value and the tax that is paid on our Australian export commodities is actually paid as part of the arms-length transfer pricing which was established under the OECD principles. The component of profit that is associated with the marketing, so effectively the marketing margin, comes back to Australia in the form of top-up tax under the CFC rules for the Australian BHP Billiton Ltd component of the marketing organisation in Singapore. The marketing organisation is a joint organisation between BHP Billiton Ltd and BHP Billiton PLC, which is the UK listed part of BHP Billiton. But I do not have—

CHAIR: And that is not a figure you have?

Mr Cudmore : I do not have that figure to hand.

CHAIR: Can you take that on notice?

Mr Cudmore : We do not break out our accounts that way. That is a matter, I think, that we would consider to be commercially sensitive.

Senator XENOPHON: This is directly supplementary to the chair's line of questioning. I think the question was—was it not, Chair—how much profit have you made on your Singapore marketing hub since 2006? That is when you started the Singapore marketing hub?

Mr Cudmore : Our Singapore marketing hub actually is an organisation that was a legacy Billiton entity that goes back to the early nineties, when it was located in Europe, when the customer base was closer to—

Senator XENOPHON: The question on notice is: how much profit have you made on the Singapore marketing hub since 2006 and, further to that, how much tax do you pay in Singapore on the profits derived by your marketing hubs since 2006?

Mr Cudmore : I do not have the numbers since 2006. We publish our Singapore taxes in our sustainability report. The underlying profitability of the marketing part of our commodity sales, which is a small margin at the end, is a commercial matter that we would consider to be competitively sensitive.

Senator CANAVAN: I can have some sympathy for that, but can I ask—through you, Chair—a slightly different way. You gave us your blended tax effective tax rate across the world, but what is your effective tax rate in Singapore?

Mr Cudmore : I do not have that number, but again I would make the point that—

CHAIR: Is that commercial in confidence between you and the Singaporean government?

Mr Cudmore : That would be a competitive commercial matter for us.

Senator XENOPHON: You do not even know what tax you pay in Singapore?

Senator CANAVAN: He does, but he cannot disclose it.

CHAIR: You do not know, or it is commercial in confidence?

Mr Cudmore : It is commercially confidential, Senator.

CHAIR: Is that the same with—

Mr Edmands : No, I can give you some figures. Perhaps I can also strongly refute the suggestion about how we use Singapore, firstly by just describing why it came about. We talked about the fact that we have shipping; we have marketing; we have procurement. In fact, in relation to those operations, we wanted to centralise those operations in one centre, and some of those operations were conducted in Hong Kong, China, Switzerland, the UK, Australia, New Zealand, Canada, Namibia and the USA for the group. So the first point I would make is that we had to choose a location to put that in, and it had to be a centre that made sense. Singapore makes geographic sense because of where it is.

In relation to what then happens regarding Singapore, I do not have a figure since 2006, but I have the total profit that Singapore earned last year. It earned $719 million, but that was not on account simply of commodities that had their origin in Australia going through Singapore; that is on account of everything that happened in Singapore globally. Singapore also has a separate trading arm where it trades third party commodities. So that is a global total profit in Singapore in relation to those operations.

In relation to the tax rate we pay, we pay five per cent in Singapore. Last year we paid $44 million.

CHAIR: Mr Cudmore, do you have similar figures—or you do not? Or you will not share them?

Mr Cudmore : We would consider our figures to be competitively sensitive.

CHAIR: Why is Rio prepared to? A fair question for us, who sit outside of this: why would it be that Rio is prepared to share those figures and BHP is not?

Mr Cudmore : I cannot answer for Rio, as you would understand. Our position is that that is a matter of commercial sensitivity, and that is the position that we adopt.

Senator XENOPHON: But your credibility on that has been shattered by the fact that your competitor is prepared to disclose those figures.

Mr Cudmore : That is a matter for Rio.

Senator CANAVAN: Can we request that you take that on notice and come back to the committee with an answer.

Senator XENOPHON: Yes. The committee can ask for those documents.

CHAIR: Okay, explain this to me as a bit of a layman. Obviously there is so much experience in the mining industry sitting at that table. Marketing hubs—you sell minerals and resources. What are you marketing?

Mr Cudmore : Minerals.

CHAIR: But to who? What are you—

Mr Edmands : To trading.

Mr Cudmore : To trading.

CHAIR: But explain to me: what is a marketing hub? And what do you market?

Mr Edmands : We would not describe it as a marketing hub. We would describe it as a commercial centre which undertakes marketing activities—which is putting buyer and seller together—shipping, procurement and other services. There are two elements to that. One is what they do, and the second is that we want to centralise that function as a matter of efficiency, in one centre, for our global operations, so we have to choose an appropriate place. Why would you choose Singapore? You would choose Singapore for a number of reasons. Singapore is proximate to the Asian markets. There is a lot of work—we have just under 330 people in Singapore undertaking this work—involved in putting buyer and seller together and marketing. There are all sorts of ways in which the ore is marketed. The point is that the work that is undertaken in Singapore is work that could not be sensibly undertaken elsewhere. It is—

CHAIR: Mr Edmands, why couldn't it be?

Mr Edmands : Well, it couldn't be, firstly, because of geographic location. But one of the other elements of Singapore that are important is that, in terms of our relationships with customers, Singapore is seen as a neutral location. It is seen as a neutral location between buyer and seller.

The fact is that Singapore are undertaking activities which have to be priced on an arms-length basis. They are undertaking certain risk. They are undertaking certain shipping activities et cetera. It has to be priced on an arms-length basis, and that is how it is priced. They are valuable services, as I have said. I took the example of iron ore in Australia that is marketed. The price that could be achieved for our iron ore going into China or other places, because of the services that are provided by Singapore, is higher than would otherwise be achieved, and it is higher by more than those Singapore services cost.

Senator CANAVAN: For the purposes of the committee, there is just one question to clarify exactly what you are doing. I am not an expert in your business, but as a Queenslander I know a little bit about coal. I suppose for me it is a bit like 'oils ain't oils'. Coals are not coals either; there are different grades and qualities and types. And presumably, when you are marketing those types—and I do not know about iron ore and whether that is the same there—you have to establish relationships for quality products, reliability, consistency of delivery; all the usual things that businesses have to do when they are selling something and selling themselves. Is that correct, Mr Edmands? Are those the sorts of activities that your marketing—

Mr Edmands : Yes. So two things—

Senator CANAVAN: It will be contacting customers, selling—pitching.

Mr Edmands : Two things I will say in relation to that. Firstly, we do not market coal through Singapore. But the concept that you simply find buyer and seller and it is just a fungible commodity is not right. If you look at the iron ore price that is quoted, a CFR price is quoted. That is not necessarily the realised price. A party can realise much more than that depending on all sorts of quality, consistency and delivery features in relation to what they are sending through, or they could realise a significantly discounted price. And those services are critical in relation to what that outcome is. So, in our case, if you look at what the quoted CFR price is for iron ore, we achieve a much better price than that, and that is because of how we market, how we respond to quality requirements in relation to our customers and the other services that are conducted.

Senator KETTER: Mr Cudmore, I just want to come back to the line of questioning from the chair in respect of your Singapore marketing operations. Perhaps just to provide a bit more detail to the chair's question: there was a Financial Review investigation in 2014 which talked about the fact that your 'BHP Billiton Marketing AG Singapore Branch paid $US33.7 billion to buy iron ore and other minerals' which were then sold on to your Chinese and Japanese customers for US$38.6 billion, so a mark-up of US$4.9 billion. That is in the nine years to 2009. These mark-ups are reported to be worth $25 billion. Can you tell us about that and what sort of tax has been paid there?

Mr Cudmore : Senator, those are, I think, figures you are quoting from a media report—

Senator KETTER: Yes.

Mr Cudmore : so I am not sure that I am able to deconstruct the figures from a media report. What I would say is that almost 100 per cent of the sales volume of the commodities that we export is subject to Australian tax.

CHAIR: What are the figures then? Are those figures wrong?

Mr Cudmore : They are not BHP Billiton's figures as far as I am aware.

CHAIR: What are BHP Billiton's figures then?

Mr Cudmore : I will go back to the statement I made in my testimony that almost 100 per cent of the sales value of the commodities we export is subject to the Australian tax net.

CHAIR: I know that is your answer, Mr Cudmore, but you are sitting beside Rio Tinto, who are prepared to break down every one of their taxes, break down their entire operations and go, 'This is what we paid here and there.' Now, people may disagree with some of it; people may dispute it, but at least the information is there in a transparent way for people to make that kind of assessment. Mr Cudmore, again, you are the biggest taxpayer in Australia. You pay over $8 billion in tax. That is a huge component of the Australian economy. But surely some transparency for the Australian people would go a long way.

Mr Cudmore : As I mentioned earlier, we do have a transparency, a taxes paid, section of our sustainability report which does actually break down taxes paid by country. I would also say again that we are proud of the fact that we are considered by Transparency International—which I think people would agree is a globally significant organisation when it comes to transparency—to be the most transparent mining company in the world across a range of factors.

Senator CANAVAN: Can I just add something. Mr Cudmore, I find it a little bit strange that you will not provide that information either. I see no shame in you paying low taxes in other countries. I am not a shareholder of your company or any of the companies here at the table, but, if I were—

CHAIR: You probably are—

Senator CANAVAN: I do not know. Maybe not. I do not know. I do not believe so. I am not a direct shareholder. But if I were, though, I would absolutely expect you to look for opportunities to move economic activity to low-tax jurisdictions. That is going to be the reality of the global commercial world. And therefore I do not think it would be of any great shame if you were to pay low tax in Singapore. As long as those activities are real economic activities and not for the purposes of avoiding tax, you are not doing anything illegal. Indeed, you are meeting your statutory obligations to maximise profit for your shareholders.

Mr Cudmore : Senator, maybe I could just clarify. We do publish taxes paid in Singapore, but that is not the sole total of our tax liability from our Singapore operations. The tax that is due from the BHP Billiton related activities in Singapore comes back to Australia in the form of top-up tax because of the BHP Billiton Ltd controlled foreign company requirements.

Senator KETTER: Mr Cudmore, are part of your profits from your Singapore operation transferred to the Switzerland based BHP Billiton Marketing AG?

Mr Cudmore : That is a financial transfer, but it does not affect the tax status of the tax that is owed and payable back in Australia.

CHAIR: Then why do you do it?

Ms Michie : There is not actually a transfer. On the reference to the transfer to the Swiss company: it is actually already a Swiss company. It is a Swiss company that is operating a Singapore branch, so it is a Swiss company that actually owns those profits as and when they are made, so there is no transfer to a branch or to the Swiss company as such. The Swiss company already owns them.

Senator KETTER: So the Singapore operation is a subsidiary of the—

Ms Michie : It is not a subsidiary; it is a branch. It is like when you walk into a branch of a foreign bank or something. That is what it is. It is not a separate legal entity.

CHAIR: But the branch of the Swiss operation—

Ms Michie : Correct, so we have a Swiss company—

CHAIR: which is owned half by the British—

Ms Michie : Correct. That is exactly it.

CHAIR: That is very simple then!

Ms Michie : It is a Swiss company that is owned half, that is owned across the DLC, and that is why the profits of that Swiss company are then picked up—a substantial portion of those profits are then picked up—and taxed back in Australia. So the discussion about the low tax rate in Singapore is actually a little bit irrelevant because we are actually paying 30 per cent tax on a substantial part of those profits. And then, conversely, the more Singapore tax you pay, actually the less Australian tax you pay.

CHAIR: Ms Michie, the problem for us is that a lot of what you are saying sounds incredibly reasonable, but you are effectively saying to us: ‘Take us at face value. This is what we are doing.’ Unless that information is available—again, I could go back to this point of transparency—it is hard. You are effectively saying: ‘Trust us, trust us; we are doing the right thing.’ I will give the call to Senator Milne.

Senator MILNE: I would like to go to the relationship that Rio, BHP and Fortescue have with the tax office. In 2010, when then Prime Minister Rudd announced a minerals resource rent tax, the superprofits tax, can you confirm that you all contributed to the campaign against that tax and can you explain what you put into that campaign against that tax?

Senator CANAVAN: You should be very proud of it!

Senator MILNE: Could the three of you provide a figure for what you put into the campaign against that tax?

Mr Edmands : I do not have the figures in relation to contribution. I think there was effective contribution through associations, as opposed to direct. Yes, I think there was.

Senator MILNE: How many million?

Senator CANAVAN: Chair, I raise a point of order. I have no problem with Senator Milne taking this line of questioning, but I would say that it is outside the terms of reference—

Senator MILNE: No, it is not.

Senator CANAVAN: Can I just finish my point of order. It is clearly outside the terms of reference. It has nothing to do with corporate tax—

Senator MILNE: It has everything to do, as you will see if I continue my line of questioning.

Senator CANAVAN: Can I finish my point of order. In my view, it has nothing to do with the terms of reference about corporate tax payments, and we should not expect the witnesses to necessarily have this information at hand. If they want to take it on notice, that is about it.

CHAIR: I do note the terms of reference are fairly broad and we have been treating them fairly broadly for the purpose of this inquiry, and I do note that item g. relates to any relevant recommendations or issues arising from the government's white paper process on the 'Reform of Australia’s Tax System' and any other related matters. In the spirit of this inquiry for the past three years, there has been a fair bit of scope given, including to you, Senator Canavan.

Senator CANAVAN: I accept that. I think repetitive questioning—

CHAIR: Senator Milne.

Senator MILNE: Could you give me the figure (a) that you contributed and (b) how much it was.

Mr Edmands : We will take that on notice.

Mr Cudmore : I need to take that on notice. I do not have that with me.

Mr Pearce : In terms of the exact amount, I would have to take that on notice. In our case, we are not a member of the Minerals Council, so we focussed our efforts personally as a company. To be honest, the biggest cost was my personal time in dealing with the proposal.

Senator MILNE: All right. If you can just take it on notice. It is certainly reported that it was in the multimillions of dollars. At exactly the same time that you were involved in that campaign, is it true that the tax office was auditing your marketing hubs in Singapore for tax avoidance?

Mr Edmands : No.

Senator MILNE: The tax office was not auditing Rio’s marketing hub in Singapore in 2010?

Mr Edmands : So your question is: were we being audited in relation to our marketing hub at the time that that debate was happening? My understanding is no.

CHAIR: Have you been audited—sorry, Senator Milne.

Senator MILNE: Yes.

Mr Edmands : Have we ever been audited?

Senator MILNE: Yes. Were you audited prior to that or post that for your marketing hub in Singapore?

Mr Edmands : In relation to audit, maybe if I could say these things. I will come to the point in relation to the marketing hub specifically. As I said, we describe it as a commercial centre. It is not simply marketing; it is much more than that. Before we undertook any activities in Singapore, we went to the tax office and talked to them about the price that they would charge for those activities on the basis of seeking to agree that that was an appropriate arms-length price. Since then—and reviews and discussions can take various forms, including audit, which is a closer form of review—we have been in discussion. That review has elevated to an audit review, and that simply continues.

Senator MILNE: I just want to clarify this. You said in your opening remarks that you are not being audited by the tax office. Are you now saying that the review of the marketing hub which started has now turned into an audit, or has the audit been completed, or is it ongoing?

Ms Wolff : The audit is ongoing. We have not received a position paper from the ATO indicating a position; therefore we are not currently in dispute with the ATO. To clarify that, our opening statement did not make the comment that we were not under audit. It simply refuted the comment from the media article that we were being pursued for billions of dollars in tax.

Senator MILNE: I beg your pardon. I interpreted what you said wrongly, then. We have clarified it now—you are being audited by the tax office. Now there is a media report saying that you have received a tax bill in relation to around about $3 billion. Are you saying you have not received a position paper which is requesting any payment to the tax office?

Mr Edmands : I am saying that is categorically wrong. We have not received a position paper, so the fact that we are under audit in the sense of a close form of review does not necessarily mean we will receive any bill from the tax office. It depends on the outcome of that audit, which is really a close checking process in relation to whether our pricing is appropriate.

Senator MILNE: I am wanting to know why you are under close review, which aspects of your organisation are under particularly close review and does that include transfer pricing in Singapore?

Mr Edmands : We have various transfer pricing matters that we have ongoing discussion with the tax office in relation to. One aspect of that is under audit in relation to our Singapore activities, as I have said. But that is simply a higher level of review, and I suppose it reflects the fact that it is a complicated matter which will need to be resolved. We have put to the tax office the basis on which we are pricing the activities that are undertaken in Singapore, and it is for that process to continue in order to get to a final conclusion on that.

Senator MILNE: I will come back to that in a minute, but I want to move on to BHP. Are you being audited by the tax office?

Mr Cudmore : My understanding is that is the case.

Senator MILNE: Why are you being audited by the tax office?

Ms Michie : We are being audited because we are in discussions with the tax office as regards what the correct transfer pricing methodology is and pricing arrangements between the sale of the commodities to the Singapore hub.

Senator MILNE: So the audit relates to the price of commodities through the Singapore hub. This goes to the whole point that we are making here. Is it fair to say that the tax office is questioning the activities in the marketing hub, as to whether they are a substantial business or whether they are created for tax avoidance purposes?

Ms Michie : I would say that it comes down to pricing, rather than, because tax avoidance can be that you have just set it up, which is a general anti-avoidance provision. This is nothing to do with general anti-avoidance, this is just to do with pricing—have you priced the commodities that you sell, promised earlier to Singapore, correctly. We firmly believe in our position, and in the pricing that we have adopted and are adopting.

Senator MILNE: So the audit is ongoing, and one aspect of the audit is the Singapore hub. What else is being audited?

Ms Michie : Sorry, I thought the question was to do with the marketing hub. That is what we have been answering.

Senator MILNE: Yes, and I am now asking more generally: apart from the audit relating to the hub, are you being audited for anything else?

Ms Michie : At any given time in the ordinary course, I would expect that we would be in discussions with the tax office as regards our interpretation of the law. That is particularly because of the complexity of the Australian tax laws. At any given time we will be in discussions with the tax office in these things.

Senator MILNE: In relation to the audit that is ongoing, particularly in relation to the Singapore hub: have you been issued with a position paper asking for a particular level of payment?

Ms Michie : We would prefer not to provide running commentary as regards where we are at with the audit. It is an ongoing process. These things normally take a long time and so we do not want to provide running commentary as regards where we are at or where we think this is going to go, other than to say that we strongly believe in the position that we have adopted.

Senator MILNE: Yes, no doubt you do believe in the position you have adopted, but this is a direct question: have you been issued with a position paper from the tax office in relation to this matter?

Ms Michie : We would prefer not to answer that question, thank you, in the interests of—

A committee member interjecting—

Ms Michie : Pardon?

Senator MILNE: I think that actually the community deserves to know.

Ms Michie : An audit is just part of a process. A position paper—

Senator MILNE: Yes, and a position paper—

Ms Michie : A position paper is just part of the process of an audit. It just depends where you are in the life cycle of an audit. There is no significance to be attached to a position paper, other than the fact that this audit is more progressed than the other audit. That is why I say we would prefer not to provide running commentary as regards where we are at any given time with any discussions with the tax office.

Senator MILNE: Yes, but doesn't a position paper put forward a figure that the tax office is suggesting you owe the tax office?

Ms Michie : I come back to my earlier comment that we do not want to talk about it, and a running commentary about where we are—

Senator MILNE: I am asking—

Ms Michie : The point is that we firmly believe in the position that we have adopted. The tax office can state what they think their position is going to be, but we firmly believe in what our position is.

CHAIR: Ms Michie—

Ms Michie : Therefore, in a sense the tax office numbers are kind of not really relevant to us, because we—


Senator MILNE: I think the tax office numbers are relevant, Chair.

CHAIR: Can we just stop there for a second. Let us just clarify where we are at. You would have got some legal advice on that before you came here, Ms Michie, I would assume—a company of your size. You understand the question that has been asked. It sounds like what you are trying to do is claim public interest immunity to not answer the question.

Ms Michie : What I would say—

CHAIR: Because you cannot come here and just not answer.

Ms Michie : No, no, but what I would say—

CHAIR: You have to have grounds for that claim.

Ms Michie : is that a position paper issued is part of an ongoing process so, therefore, the question is for taxpayers: 'Where are you exactly in your audit process', 'have you been issued with a position paper', 'have you been issued with 264s' or 'how many questionnaires have you been asked'. That is part of the overall process in connection with an audit.

CHAIR: That is not the point. There is a—

Ms Michie : To come back to the point, we firmly believe in the position that we have adopted. And secondly, can we not lose sight of the fact that a large proportion of the profits that we earn in Singapore are actually taxed back in Australia, under the Australian CFC rules. Let us not lose sight of that.

CHAIR: But, Ms Michie, you cannot just not answer because you choose not to answer. There is a specific question a senator has asked. You are testifying before a Senate committee; this is serious. Senator Milne has asked a specific question. Now, you have the right to claim public interest immunity, under the rules of the Australian Senate, as the reason for not answering the question but you cannot just not answer because you do not want to answer this question.

Mr Cudmore : Senator, we have answered in the affirmative on the question of the audit. We believe this is a competitively sensitive matter. We have our competitor sitting next to us. We would, respectfully, prefer not to go any further than confirming what we have confirmed.

Senator MILNE: Well, I think it is appropriate if you have been given a position paper by the tax office. The whole community is very interested in the fact that the marketing hubs have been set up to minimise tax; everybody knows that that is the case. You can argue what you like about substantive operations or otherwise in Singapore. But the reason the tax office started these audits back in 2010 was that they saw that for what it was.

Senator CANAVAN: Chair, can I just—

Senator MILNE: The community wants to know how much money the tax office is saying you owe. Is it $4 billion? That is the figure that has been in the media. Is that what the tax office is saying you owe the community?

Senator CANAVAN: Chair, I raise a point of order: I fully support Senator Milne's right and the committee's right to request this information. I think it is very important that we establish exactly why the witnesses will not answer the question. But I want to make an objection to the statement 'everybody knows that they have done this for tax minimisation reasons', because that has not been established and it would be a breach of our laws and the general anti-avoidance rules. I do not think that as a committee we can make judgements on that matter; that is an appropriate matter for the courts and for the Australian Taxation Office.

Senator WHISH-WILSON: Can I just ask both Rio and BHP: these numbers are theoretical at the moment, but at what point would you have to make provision for this kind of extraordinary payment to the tax department? Surely, if it is material to your earnings, it is a risk that you have to manage internally.

Mr Cudmore : As I say, we have stated in the affirmative on the question of the audit. The other matters are matters of competitive sensitivity. It would be our preference not to discuss them. We have had our competitors here. If I may, I will just state that the reason that we have a marketing organisation in Singapore is to provide marketing services to ensure that our commodities achieve the best price for the production of those commodities from this country and, secondly, that our Singapore organisation has deep analytical expertise that allows us to determine the ultimate allocation of capital for our business, based on our projections of what we believe supply and demand is likely to be, particularly in the Asian region. That is why our Singapore organisation exists.

Senator MILNE: Can I just come back to another—

CHAIR: Sorry—

Senator MILNE: I will just say that we will take this up in the Senate.

CHAIR: We will do one thing, I suggest, Senator. We have just got some advice. I just want to be very clear what has gone on here. A specific question has been asked. Mr Cudmore, on behalf of BHP, has claimed public interest immunity on the grounds that it is a commercially sensitive question. That is my understanding of what you have—

Mr Cudmore : I am saying we believe it is commercially sensitive. I did not—

CHAIR: Okay. Fine. Whether it is accepted or not is a matter for the committee. Because a specific question has been asked and a specific request made, I assume, Senator Milne, that you are asking the committee to make a determination whether or not we accept the grounds for public interest immunity.

Senator WHISH-WILSON: Is it public interest immunity, though?

CHAIR: That is the claim that has been made. It is a matter for the committee whether it accepts it or not.

Senator MILNE: Well, I do not accept it.

Senator WHISH-WILSON: Have you made that claim? I did not hear that.

CHAIR: It being 4.01 pm, the committee will go into private session between now and 4.05 pm to make a determination about whether we accept the claim. Just so you understand the process, Mr Cudmore, if the committee chooses to not accept your public interest immunity claim, should you then choose not to share that information, it starts becoming a matter for the Australian Senate.

Proceedings suspended from 16:01 to 16:09

CHAIR: Mr Cudmore, Ms Michie, the committee has met. We have considered your request about the commercial confidentiality of the matter, as you have outlined. The committee does not accept your reasoning. There are three options available to you, but I will give you the opportunity to take your answer to these three options on notice. I understand these are matters that need to be discussed with others as well. It is a large company. You alone do not make every decision, and I accept that. The three options available to you are to provide the information on notice, to provide the information on notice in camera—which means it will be a confidential document that will not be shared—or to not provide the information. I would bring it to your attention that choosing not to do so then makes this a matter for the Australian Senate.

Senator CANAVAN: On a point of clarification: my understanding, and correct me if I am wrong, is that if you do provide the document in camera it is still a discretion of the committee—

Senator MILNE: That is correct.

Senator CANAVAN: about whether that remains confidential or in camera, and you can receive your own advice about that. The Senate has published resolutions about this but I just wanted to make that clear.

CHAIR: Mr Cudmore and Ms Michie, in respect of the size and nature of your business, I will take that on notice for you to talk to your people, as I am sure you will.

Senator MILNE: Just a follow-on from that particular matter, I note in your 2014 annual report, in the audit and risk committee, you talked about setting the disclosure of contingent liabilities from income tax, including transfer-pricing issues and the status on audits and matters 'not yet subject to specific consideration by tax authorities but where uncertainty exists in the law'. I notice also that this report listed US$1.65 billion in contingent liabilities for actual or potential litigation, including tax related amounts. Could you tell me how you came to the $1.65 billion figure in that contingent liability allocation?

Mr Cudmore : That is a global number. It relates to the global footprint at BHP Billiton. I do not have the detail on how that number was built up. I do not know, Jane, whether you do or whether we can take that on notice.

Ms Michie : What we would say is that such a tax—it is all liabilities. It is not just tax, it is global and it is tax and it is nontax.

Senator MILNE: If it is only US$1.65 billion that has been set aside, are shareholders at risk—or at least need to be notified—if indeed you are up for a substantially larger sum as a result of the audit from the Australian tax office?

Mr Cudmore : We would take a view on the status of those matters and we have noted that in our annual report, in terms of that amount.

Senator MILNE: I want to move on to Fortescue. You have flown all this way and we cannot just ignore you! I want to follow up with you as to whether you are being audited or whether an audit or review is underway with Fortescue or whether a position paper has been issued to you. Could you give us an update, in terms of Fortescue's position, please?

Mr Pearce : I am happy to confirm from Fortescue's perspective we have no open items, at all, open with the tax office at this time.

Senator XENOPHON: I ask BHP, in terms of the position paper—a question that you are refusing to answer—do you acknowledge your obligations, under corporations law, in respect of continuous disclosure?

Mr Cudmore : We do. Yes.

Senator XENOPHON: You do not see it as relevant, in the context of continuous disclosure, to advise whether you have been issued with a position paper or not, which would carry with it an implication of contingent liabilities.

Mr Cudmore : We take these matters very seriously. We have drawn conclusions, and those conclusions are—

Senator XENOPHON: Have you sought any advice from ASIC as to whether it is appropriate for you not to disclose to your shareholders whether a position paper has been issued in respect of your potential tax liabilities?

Mr Cudmore : On the matter of continuous disclosure, we have a very rigorous process. We make very deliberative—

Senator XENOPHON: Is this something you have run by ASIC?

Mr Cudmore : I am not aware of specific discussions on such matters, but our disclosure processes are very rigorous and we make determinations based on very careful considerations.

Senator XENOPHON: So you cannot tell us whether at any point since 2006 you have received an adverse assessment from the ATO?

Mr Cudmore : I do not have that information.

Senator XENOPHON: Right. Are you sure?

Mr Cudmore : I do not personally have that information.

Senator XENOPHON: But you know what this inquiry is about, don't you?

Mr Cudmore : Yes, I do.

Senator XENOPHON: You have read the terms of reference presumably.

Mr Cudmore : Yes.

Senator XENOPHON: So you did not think you would get a question on this, did you?

Mr Cudmore : I do not have that information, Senator; I am sorry.

Senator XENOPHON: Okay. That is pretty extraordinary. Have you made provisions in your accounts for the increased taxation expense associated with the ATO's review assessments at all?

Mr Cudmore : I do not have that information, Senator.

Senator XENOPHON: You don't. So you do not know. It is pretty material to your accounts though, isn't it?

Mr Cudmore : Our accounts we believe are a fair and accurate representation of the state of the business.

Senator XENOPHON: No. The question was: have you made provisions in your accounts for any increased taxation expense associated with the ATO's review and/or assessments and in what years and what amounts? You cannot tell me any of that?

Mr Cudmore : I do not have that information with me.

Senator XENOPHON: So you will take it on notice and provide answers to that or are you going to refuse to provide answers to that—or you do not know whether you will refuse to provide them at this stage?

Mr Cudmore : We will take the question on notice and we certainly endeavour to provide what we can provide.

Senator XENOPHON: Right. You are not going to shroud it in commercial-in-confidence at this stage?

Mr Cudmore : I do not have that information with me. All I can do is take the question on notice.

Senator XENOPHON: Assuming you do answer those questions, have you informed the state revenue office in Western Australia?

Mr Cudmore : I do not have that information.

Senator XENOPHON: Because it does have implications in respect of royalties in WA. I imagine that Premier Barnett and a few others in Treasury would be quite interested in what your answers would be in respect of that.

Mr Cudmore : I do not have that information with me.

Senator XENOPHON: Right. So you do not think it is relevant under the continuous disclosure obligations under our Corporations Law to advise your shareholders of any dispute that you have with the ATO?

Mr Cudmore : We have very rigorous continuous disclosure processes. We take these matters very seriously. We reach determinations. I do not have anything more to add on that. I apologise.

Senator XENOPHON: I would rather an answer than an apology. So it is not listed as a contingent liability in any of your accounts?

Mr Cudmore : I do not have that information. I do not have anything further to add. The contingent liabilities are listed in the annual report relating to our liabilities across a range of activities globally. That is the information I have.

Senator XENOPHON: Who can tell me these things? Which executive of BHP can tell me? Can you tell me, Ms Michie?

Ms Michie : No. I can only add to the comments that Mr Tony Cudmore has made that those are global numbers that cover a whole range of matters—tax and non-tax—across the globe.

Senator XENOPHON: So you are adding to the comment to say that you have no comment effectively! Do you have an advance pricing arrangement currently in place with the ATO? Did you mention APAs or was that Rio?

Ms Michie : I think that was an ACA, which is different from an APA.

Senator XENOPHON: Yes. So is there an advance pricing arrangement in place at the moment?

Ms Michie : No, we do not have an APA.

Senator XENOPHON: You do not have any?

Ms Michie : Not with the ATO, no.

Senator XENOPHON: No?

Ms Michie : Not that I am aware of.

Senator XENOPHON: And the ACA is the annual compliance arrangement?

Ms Michie : That is correct.

Senator XENOPHON: Do you have those in place?

Ms Michie : No, we do not, but we are under continuous disclosure with the ATO under a precompliance review, so we have real-time auditing with the tax office. We have a very open and transparent relationship with the tax office. They are fully aware of everything that we are doing.

Senator XENOPHON: But in this period you hired Mr Paul Suppree, who gave evidence earlier today. He used to work for the ATO as a very senior officer of the ATO. You have had the benefit of his advice. You know how these things work.

Mr Cudmore : I have never met Mr Suppree, I am sorry.

Senator XENOPHON: Mr Edmands or Ms Wolff, have you actually got an advance pricing arrangement in place at the moment?

Mr Edmands : In relation to our operations in Singapore, we do have one for alumina. We do not have one at this point in relation to iron ore.

Senator XENOPHON: So do you have an ACA in place?

Mr Edmands : We have an ACA—

Senator XENOPHON: Yes, an annual compliance agreement, so that is year by year.

Mr Edmands : Under that we deal with the tax office on a continuous basis and we also report annually.

Senator XENOPHON: I want to go back to BHP. You cannot or will not tell us how much money has gone from BHP Billiton's Australian operations to Singapore. Can you tell us how much money is involved?

Mr Cudmore : Gone from Australia? Senator, I do not understand that question.

Senator XENOPHON: You do not understand the question, okay. Was sort of revenue has the Singapore operations, the marketing hubs, obtained? How much profit have you made on the Singapore marketing hubs? How much tax have you paid on the Singapore marketing hubs?

Mr Cudmore : As I mentioned before, I do not have the specific numbers.

Senator XENOPHON: But you will provide the answers or you will not?

Mr Cudmore : I mentioned before that we consider those to be competitively sensitive.

Senator XENOPHON: If it is competitively sensitive for you but not competitively sensitive for your competitor, who is sitting right next to you, doesn't that make a mockery of your arguments?

Mr Cudmore : I cannot speak for any other company than BHP Billiton.

Senator XENOPHON: Yes, but there is the fact that they are prepared to disclose that information and you are not. Doesn't that destroy your argument with respect to that?

Mr Cudmore : I really cannot speak on behalf of Rio Tinto, Fortescue or any other company. I can only speak on our behalf and only convey our perspective.

Senator CANAVAN: On Senator Xenophon's line of questioning, I pulled up your annual report for 2014. I go to 21 in your financial statements. This is a relevant note on contingent liabilities. You have listed in that table for 2014 liabilities associated with actual or potential litigation of US$1.651 billion. A footnote to that amount says:

Actual or potential litigation, including tax-related amounts, predominantly relate to a number of actions against the Group, none of which are individually significant and where the liability is not probable and therefore the Group has not provided for such amounts in these financial statements.

I am struggling a little bit to interpret that note. Does that mean that there are no tax related litigation amounts in the $1.651 billion in that annual report?

Ms Michie : What I would say is that it is a global number, so, as you would expect, it will have tax and non-tax across the globe.

Senator CANAVAN: I accept that, Ms Michie. I am just asking a very simple question: is there any tax related litigation included in that $1.651 billion?

Ms Michie : I think that is going back to the earlier point, which is: how much of that is related to tax? I think we are just standing by the comments we made earlier.

CHAIR: Were any of them related to tax?

Mr Cudmore : We would have to take on notice the composition—

CHAIR: Not the composition. I am asking: do you know of any outstanding tax matters in that $1.6 billion?

Mr Cudmore : I would have to take that on notice.

Senator CANAVAN: Since the annual report, have you provided any information to shareholders in relation to adjustments to contingent liabilities, particularly about your litigation risks, obviously?

Mr Cudmore : I am not aware of that.

Senator CANAVAN: Could you take on notice whether you have made any additional public announcements about that information as it relates to tax related litigation?

Senator KETTER: In the interests of being even-handed, I would like to ask Mr Edmands: has your company received an adverse assessment from the ATO with respect to the use of offshore marketing hubs?

Ms Wolff : We received a relatively moderate assessment in relation to a very early period, where we agreed to an adjustment to our pricing with the ATO.

Senator KETTER: Can you tell us the status of that assessment at the moment?

Ms Wolff : That was a matter where we approached the ATO to ask for agreement in relation to our pricing. The matter took some time in order for us to reach agreement. Once we reached agreement there was a small amount, relative to our overall profit, that needed to be paid. We have now paid that.

CHAIR: I just want to clarify what you are saying. Your answer is that there was an outstanding issue that has been resolved.

Ms Wolff : Correct.

CHAIR: Thank you for sharing that information with us.

Senator WHISH-WILSON: In relation to what we heard earlier today—

Senator CANAVAN: Chair, can I ask a couple of questions, with your indulgence, Senator Whish-Wilson?

CHAIR: Is that okay, Senator Whish-Wilson?

Senator WHISH-WILSON: Sure.

Senator CANAVAN: Sorry—I have not had any of my own time so far in this session. I go back to your evidence. I think this is for everybody, or at least those who are members of the EITI. I had a quick look at that. Australia is a member country, obviously. India, Brazil and China are not member countries, and the United States is a candidate country. Is that the information you have—that we are a member country, but many of the biggest coal-producing countries in the world are not?

Mr Cudmore : The EITI was targeted initially at non-OECD countries. Australia has been running a pilot program. I would have to check and take on notice the question of the specific countries that you have mentioned and their status.

Senator CANAVAN: Okay. Are your competitors overseas members of the EITI?

Mr Cudmore : Some of them are. It is a very significant large organisation now that is comprised not just of the mining industry but also a number of oil and gas companies.

Senator CANAVAN: Some are not, though, as well?

Mr Cudmore : That would be my understanding.

Senator CANAVAN: Could you maybe take on notice for us what competitors of yours are not members of this organisation?

Mr Cudmore : Certainly.

Senator CANAVAN: I do not know how much you can answer this, but do you believe that your major competitors comply with tax laws to the extent that some of you have said you try to comply with the spirit of those laws as well as just the black-and-white law? Do your major competitors overseas do the same?

Mr Cudmore : I would not want to reflect on any competitor.

Senator CANAVAN: I can understand that. What about not so much their compliance but the actual tax they pay? Are you in a disadvantaged position here in Australia relative to other countries or government owned coal-producing or mineral-producing companies? Do they have more advantageous tax arrangements than yourselves? I presume you have done some analysis on that in your own company?

Mr Cudmore : Really our position is that we comply with the tax rules and tax regulations in any jurisdiction in which we operate.

Senator CANAVAN: Let me put the question another way so you do not have to reflect upon competitors. How do we compare as Australia? You have investments all around the world, so I presume you do look at countries. How do we compare in terms of our corporate tax rates, and other taxes as well, relative to other countries? That is obviously a relevant consideration when you are making investments and it is relevant for us in this committee as well. That is a question to everybody. I am not trying to single out you, Mr Cudmore. If others want to join jump in, please feel free.

Mr Edmands : In relation to the Australian corporate tax rate and the total tax take—royalties et cetera all added together—we are on the high side in terms of total take.

Senator CANAVAN: Sorry; what?

Mr Edmands : We are on the high side in Australia compared to other mineral provinces.

CHAIR: Senator Whish-Wilson, we have to finish right on 4.30 because the team here have to get flights back to Canberra with equipment.

Senator WHISH-WILSON: Ms Wolff, you mentioned earlier a settlement that you have had. And, Ms Michie, you said you had a continuous open relationship with the ATO. Could you talk us through the involvement of the auditors or the large accounting companies at this stage in terms of these private, confidential negotiations you are having with the tax department? Do you have your own internal advice through your own treasury departments, or are you extensively using, for example, the big four accounting companies in your negotiations with the tax department? This is something we have been exploring as a committee today, so I would be interested if you could talk through, as a real example of what we have been looking at, who you are relying on for your advice here.

Ms Michie : With the complexity of the laws, particularly in Australia, and also the global footprint that we have—we are in many jurisdictions around the world—yes, we do rely on getting assistance from tax advisers. It is mostly just to come in and confirm what we think our understanding of the law is. The vast majority of the time, if not all the time, it is actually compliance related, so it is kind of like helping us to understand the law so that we can actually apply the law correctly. If you are asking, 'Are we doing aggressive tax planning?' no, we are not doing aggressive tax planning, so we are not inviting the big four in to say, 'Hey, come and pitch your aggressive tax deals to us.' We do not do aggressive tax planning.

Senator WHISH-WILSON: In terms of your dealings, you have obviously made a settlement with the tax department. That did not go to litigation. Could you talk us through that? You sit down and have a discussion. They obviously put a figure to you. You end up having a settlement. How does that work?

Ms Wolff : That is right. As I said, in relation to our matter, we approached the ATO to agree the pricing in relation to that matter before we even implemented that matter. But it took some time to resolve. That is indicative of the level of interest the ATO takes in making sure that what we do is correct.

Senator XENOPHON: So you volunteered an amount?

Ms Wolff : No. We went to the ATO to ask them whether they agreed with the pricing we proposed. It then took a while for that matter to progress through the ATO process. In the meantime, we had implemented at the pricing we were proposing. We then subsequently agreed an adjustment to that pricing with the ATO and made a correction.

Senator XENOPHON: There was presumably a penalty component in that.

Ms Wolff : No, there was not.

Senator XENOPHON: There was not a penalty component?

Ms Wolff : No.

Senator XENOPHON: But it was an additional amount to the initial amount agreed?

Ms Wolff : No. There was no additional amount agreed. We implemented transactions at a price that we felt was appropriate. The ATO had a look at that. They disagreed, and we agreed an adjustment to that pricing, which required a small top-up payment.

Senator XENOPHON: So you paid more tax. How much was that?

Ms Wolff : That is an amount that we would claim to be commercial in confidence and could provide separately.

Senator WHISH-WILSON: Just on that, what about the advice of your accounting companies that you are using that would have been provided to the tax department as well? They would have been involved in the discussions and the negotiations.

Ms Wolff : Yes. Transfer pricing is based on arm's length principles, which, in a lot of cases, requires benchmarking to arm's length transactions. We seek advice from advisers in relation to benchmarking of third party transactions, and they assisted us in that process.

CHAIR: It being 4.30 pm, and being very conscious of time, maybe we can place other things on notice. I think there was a few items that have been taken on notice. The secretariat will correct you in writing if I am wrong, but I believe the time that has been set for responses to questions on notice is a fortnight from today at close of business. I am sure the committee secretariat will get in contact with you with what has been taken on notice. I want to thank representatives from Rio Tinto, BHP and Fortescue Metals for being here with us this afternoon. I appreciate the submissions that you have made. I stress again that all three companies came and participated in the inquiry as willing guests on an invitation from the committee. Thank you so much for your participation. I now close this meeting of the Senate Economics References Committee.

Committee adjourned at 16:31