BHP Group, the third-largest producer of the steel-making ingredient agrees to pay AUD250M (U$175M) to State Australia (Western) tax authority to end a dispute over royalties paid on iron ore shipments sold through its Singapore marketing hub.
The accusations of having underpaid iron ore royalties
For years, BHP has sold commodities its produces in Australia such as steelmaking ingredient iron ore to a Singapore marketing arm. This unit, which benefits from a trade agreement between the UK and the city state, then sells the raw material to customers around the world. While BHP claimed that its Singapore operations were at arm’s-length from its Australian branch, ATO hit BHP with transfer pricing assessments in connection with commodity payments to its Singapore marketing business.
The government found in January that BHP Group had underpaid royalties on iron ore shipments sold via Singapore stretching back over more than a decade. The alleged discrepancy was discovered during an audit. In response, BHP quickly disputed the claim, saying long-standing deductions it makes to account for the cost of selling Western Australia iron ore had been consistently audited and accepted by the government as part of calculations on how much the world's biggest miner owed it in royalty payments.
Treasurer Ben Wyatt said the underpayments amounted to between AUD200 million and AUD300 million (U$143m - U$215m), dating back to the period between 2004 and 2016. Wyatt noted since the audit in 2016, BHP had been paying what was believed to be the correct royalty amount.
In order to end a dispute over royalties paid on iron ore shipments sold through its Singapore marketing hub, BHP reached a deal to pay U$175M million in additional taxes to the Australian government. The state government will use the money paid to build hospital and improve the facility of senior high school.
Despite offshore marketing hub issue, BHP’s marketing operations will continue to be located in Singapore and remain an important part of BHP’s value chain. BHP Group Limited plan to increase its ownership of BHP Billiton Marketing AG, which is the main company conducting BHP’s Singapore marketing business, from 58 percent to 100 percent. Thus, following the change in ownership, based on the agreement, all profits generated by BHP in Singapore on the company's Australian assets would be fully subject to Australian tax.