Rio Tinto to fight $360m Australian tax bill

April 5, 2017

by: Neil Hume, Commodities and Mining Editor

Rio Tinto said it would fight a $360m tax bill from the Australian government and defended the use of a trading hub in Singapore to buy and sell commodities including iron ore, its main source of earnings,

The world’s second-biggest miner by market value criticised an amended income tax assessment issued by the Australian Taxation Office on Wednesday as “double taxation” and promised to challenge the demand, which covers a period between 2009 and 2013.

“Rio Tinto considers that its pricing is in accordance with the internationally recognised OECD guidelines and Australian domestic law,” the company said in a statement, in which it also revealed plans to pay half the disputed amount later this month.

Rio and its rival Anglo-Australian miner BHP Billiton have drawn scrutiny from the ATO and politicians in Canberra for their use of sales hubs in Singapore.

These units purchase iron ore, a key steelmaking ingredient, and other commodities mined in Australia and sell them elsewhere to customers in Asia for a higher price. Rio has more than 350 staff in Singapore.

A year and a half ago when iron ore was below $40 a tonne this bill might have been an issue but today it equates to just 10 days of production

BHP revealed in September that it was in dispute over a $775m bill from Australian tax authorities related to its hub in Singapore. The Singapore government has granted BHP a zero per cent tax rate under an incentive deal for its marketing activities. Rio has a similar arrangement.

Rio said it approached the ATO more than a decade ago seeking to confirm its deal. Like BHP it said the amended income tax assessment was an evaluation issue not a tax avoidance issue.

“Rio will seek double taxation relief in accordance with the Australia-Singapore double tax treaty,” the company said.

Iron ore accounts for the bulk of earnings at Rio and BHP. They produced 330m and 257m tonnes of the commodity respectively last year from giant mines in the Pilbara region of Western Australia. Iron ore is currently trading above $80 a tonne.

Analysts said the tax demand was not a surprise, citing the $380m charge Rio revealed alongside annual results in February to cover potential costs from its dispute with the ATO. Shares in Rio were flat in London trading on Wednesday at £32.68.

Paul Gait, analyst at Bernstein Research, said the demand did not change the fundamental investment case for Rio.

“A year and a half ago when iron ore was below $40 a tonne this bill might have been an issue but today it equates to just 10 days of production,” he said.