20150202 Senate Committee on Corporate Taxation

20150202 Senate Committee on Corporate Taxation

Corporate tax avoidance
Submission 52
GLENCORE
2 February 2015
Committee Secretary
Senate Standing Committee on Economics
PO Box 6100
Parliament House
CANBERRA ACT 2600
Dear Committee Secretary
We refer to your letter of 27 October 2014, inviting Glencore to make a submission to the Senate Standing
Committee on Economics: Inquiry into Corporate Tax Avoidance. Our submission is attached for your
information.
Glencore is a member of the Minerals Council of Australia (MCA) and supports their submission to this
Inquiry.
Glencore w elcomes robust public debate on important public policy issues such as taxation. We urge the
Committee members to adopt a fact based approach to this inquiry and as representatives of the
Australian Parliament, consider the impact your deliberations may have on ongoing investor confidence
and future economic growth in Australia.
Yours sincerely
Nick Talintyre
Finance
Glencore Australia
PO Box Rl 543, Royal Exch ange NSW 1225
Level 38, Gateway Building, 1 Macquarie Place, Sydney NSW 2000 Austra lia
T + 61 2 9253 6700 F + 61 2 9241 6898 www.glencore.com
Glencore Australia Holdings Pty Ltd (ABN 37 160 626 102)
Corporate tax avoidance
Submission 52
1. Executive Summary
Australia is a major part of Glencore's global business. We employ over 19,000 people in Australia
(including contractors) across industries that include coal, copper, nickel, zinc and grain. The
commodities we produce and market are used in everyday life, providing electricity, in production of
steel, cement, wiring for buildings, automotive parts, home appliances, batteries and medical
applications. We supply customers in industries ranging from automotive to food processing and
power.
We are proud of the contribution we make in Australia, which extends far beyond our tax and royalty
payments to Australian Federal, State and Local Governments.
Since 2007, our business has invested approximately $19 billion in Australian projects and operations.
Over the same time period, Glencore operations have paid approximately $8 billion in taxes and
royalties to Australian Federal and State Governments, including $2 billion in corporate income tax which is paid on profits not revenue.
Taxation policy and legislation is set by Governments - not companies. Glencore abides by the same tax
rules as all other miners operating in Australia. Glencore complies with all its tax and financial reporting
obligations in Australia.
Glencore takes a disciplined approach to capital management and makes investments where they
represent value to its shareholders. The resources sector is cyclical, highly capital intensive and
investment is long term in nature. Our profitability is impacted by commodity prices, exchange rates and
the cost of doing business in Australia.
Glencore's investment decisions are influenced by the competitiveness and stability of a country's
regulatory and fiscal framework. We support a constructive and informed public debate around
taxation reform in Australia because it is directly linked to the future of investment and trade
competitiveness of Australia.
Glencore welcomes robust public debate on important public policy issues, however, we clearly do not
support ill-informed, inaccurate, misleading or emotive commentary.
Glencore does not consider the Tax Justice Network (TJN) report a reliable or credible source of work as
it contains a number of fundamental errors and inaccurate conclusions, including misleading
commentary related to our business.
Some recent media and reports on corporate taxation in Australia have made inaccurate claims in
respect of Glencore. This includes erroneous claims that Glencore has paid little or no tax in Australia in
recent years, and that revenue can and should be used as a better gauge of tax liability than taxable
profits.
This type of uninformed and misleading commentary demonstrates a poor knowledge of fundamental
accounting and taxation principles, and does not add any value to what should be a fact based public
debate about tax reform in Australia.
2. Introduction to Glencore
Glencore is one of the world's largest diversified natural resource companies and a major global
producer and marketer of commodities. With over 200,000 employees and contractors, our global
businesses include over 150 mining and metallurgical sites, offshore oil production assets, farms and
agricultural facilities.
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Corporate tax avoidance
Submission 52
Glencore was listed as a public company in May 2011, and our shares trade on the London,
Johannesburg and Hong Kong stock exchanges.
Global diversity by commodity and geography is a key strength of our business with industrial and
marketing activities supported by a global network of more than 90 offices in over 50 countries.
Our global marketing operations and business model differentiates us from other natural resource
companies in the world and enables us to capture value at every stage of the supply chain from sourcing
raw materials to delivering products to end users. Our global marketing business provides leading
market knowledge and insight which benefits our international customer base.
Australia is a major part of Glencore's global business employing over 19,000 people at mining
operations and facilities across commodities that include coal, copper, nickel, zinc and grain.
Glencore has been operating in Australia for over 15 years with many of our operations located in
remote and regional Australia where we continue to play an important role in local communities. We are
Australia's largest coal producer, and we operate the iconic Mount Isa copper and zinc mines Australia's largest mining and processing facility - and a mineral processing, smelting and refining
technology business based in Australia.
In 2013 within Australia, our socio-economic contribution included:
•
•
•
•
•
$1.8 billion - salaries and wages
$1 billion - taxes and royalties
$8.3 billion - goods & services purchased
$3.2 billion - capital investment
$12.7 million - funding of community programs
Figurel: Glencore operations in Australia
®
Mount Isa ,.,, " Ernest Henry
Mining
®
Murrin Murrin "
• Kalgoorlie
0
Agriculture: container packing
and processing facilities
• Agriculture: key upcountry
grain storage sites
• City/Town
Cobar "
® coal
® Zinc
® Copper
0
® Nickel
@)Port facilities and storage
Technology
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Corporate tax avoidance
Submission 52
3. Glencore Investment in Australia
The resources sector is cyclical, highly capital intensive and investment is long term in nature. Glencore
takes a disciplined and responsible approach to capital management and will invest where it represents
value and the best risk-adjusted return for its shareholders. We seek to maximise the economic value of
all our operations, including in Australia.
Glencore considers a range of factors when making investment decisions, including the value and
comparative global ranking of projects across a range of geographies for a finite amount of mobile
capital. In addition to commodity market outlook, the relative costs of production, regulatory risks and
technical complexity of operating in different countries contribute to determining the internal ranking of
projects. Australian projects compete for Glencore's limited investment capital against projects in other
countries.
Investment decisions consider whether the rules pertaining to tax policy and the cost of doing business
are likely to adversely change once investment decisions have been made. Retrospectivity is a key
indicator of determining relative sovereign risk.
Glencore has a successful track record of investment, project delivery and managing operations in
Australia. Our investment and operational expertise continues to directly contribute to the national
economy and also enhance the international competitiveness of the Australian resources sector.
Since 2007, our business has made direct investments of approximately $19 billion in Australian projects
and operations across our commodity businesses (excluding Glencore's investment relating to
Australian mergers and acquisitions), including capital investment of: 1
•
•
•
•
•
$9 .5 billion
$2.9 billion
$5.1 billion
$1.0 billion
$0.5 billion
Coal
Copper
Zinc
Nickel
Grain
Figure 2: History of Key Investments in Australia 2
CSA Mine @
Xstrata IPO
Teralba®
West Wallsend ®
Westside®
Liddell®
United®
Cook®
Narama®
Ravensworth ®
•
1998
Ulan®
•
1999
Minara Resources
Murrin Murrin ®
Operations
Agriculture
1
2
•
2000
•
2001
•
2002
®Bulga
®Beltana
®Bulga Sth
®Baal Bone
Cumnock Coal®
Mt Owen®
0
MIM Holdings Limited
Jubilee Mines
~ Mount Isa Mines
@ Sinclair
United Wambo ®
~ Ernest Henry Mining
~ Cosmos
Clermont®
~ Copper Refineries
~ Townsville Port Operations ®Tahmoor
Xstrata acquisition
~ McArthur River Mining
@OakyCreek
Ulan West~
@Newlands
Ravensworth ~
@Liddell
® Collinsville
North
®Rolleston
Resource Pacific
Rolleston®
McArthur ®
® Ravensworth
River Mining
Underground
@ Glencore Grain
®Coal
® Copper
•
2003
2004
2005
•
2006
Lady Loretta ®
McArthur River Mining ®
j
•
2007
•
2008
•
2009
2010
Glendell ®J
Mount Margaret Mining ®
Mangoola®
Blakefield South ®
® Nickel
•
2011
•
2012
•
2013
•
2014
@ Viterra
®Ulan OC
@ Zinc
Includes capitalised sustaining and expansionary capex
Includes major expansion project investment
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Corporate tax avoidance
Submission 52
4. Taxation of Mining in Australia
The mining industry makes a substantial tax contribution and is amongst the highest taxed industries in
Australia. According to analysis from Deloitte Access Economics, the total contribution from Federal
company tax and State I Territory royalties from the minerals industry was an estimated $156 billion for
the period 2004/05 to 2013/14.
(i) M ining Royalties
Glencore recognises that mineral resources are the property of the people of the Australian State
or Territory in which they reside. We therefore recognise the right of State and Territory
Governments to impose a royalty on Australian mineral resources for the ability to extract those
resources.
Perhaps the most important distinction between royalties and company tax is that in all States,
royalties are paid regardless of whether the operation is profitable or not. This is because
royalties are payable on every tonne of mineral sold, typically based on a percentage of the
selling price. At present in Australia, some Glencore mines are operating at a loss as a result of
low commodity prices, but are still paying royalties. In this regard, royalties are much less
responsive to commodity cycle volatility and have little relationship to profit.
While some in the media have commented that royalties are simply due consideration for the
right to mine, these are ultimately costs that must be borne by the mine.
The development of mining operations is high risk and requires extensive capital investment
(mainly upfront) in respect of which the company requires an appropriate return. Australia
competes internationally with other resource rich countries for highly mobile investment capital.
In the absence of companies prepared to take on the risks of investing their capital, there would
be no royalty streams realised by the States. Assuming that simply because the resource is in the
ground it will be developed is a fundamental flaw.
Royalties from resources are increasingly a key source of revenue for State and Territory
governments and a significant cost of doing business in Australia. Revenue from State mineral
royalties increased from around $2 billion (2004/05) to almost $10 billion (2013/14)2. Notably
Queensland and New South Wales both increased their royalty rates during this time and saw
revenue from royalties increase by an estimated $1.4 billion (QLD) and $1 billion (NSW),
respectively. These royalty rate increases impact on Australia's international competitiveness for example the top rate of QLD coal royalties is now 15% of revenue.
(ii) Company tax
According to the Minerals Council of Australia (MCA), Federal company tax on mineral resource
companies in Australia increased from $3.4 billion (2004/05) to an estimated $12 billion
(2013/14)3, reflecting a period of higher commodity prices and company profitability. For the
period 2008-2010 the resource sector played a significant role in mitigating the negative impact of
the global financial crisis on the Australian economy.
Corporate income tax is levied and paid on taxable net profit. Like any business, small or large,
Glencore is not liable to pay corporate income tax where it has incurred losses. In relation to
company tax, profit is the amount remaining after the costs of running the businesses have been
offset against revenue.
2
3
Minerals Council ofAustralia, 2015 Submission to Senate Economics Reference Committee Inquiry into Corporate Tax A voidance
Ibid
4
Corporate tax avoidance
Submission 52
In the mining sector, these costs include depreciation of large upfront capital investments and
material ongoing operating costs. Revenue in isolation is not an indicator of the profitability of
any business, nor do revenue figures alone have any relevance to the amount of corporate
income tax payable. It is fundamental to a fair and equitable tax system that tax should only be
payable on the overall profit, if any, derived from the relevant operations.
Compared to other countries in the OECD, Australia has a relatively high level of corporate tax.
According to Deloitte Access Economics, Australia' s company tax rate of 30% is higher than the
OECD average of 25.5%, and represents almost 20% of the Australian Federal Government's tax
revenue compared to the average share of 8.5% across OECD countries. This places Australia
second only to Norway in reliance on company tax.
The Resource Super Profit Tax (RSPT) and Minerals Resource Rent Tax (MRRT) that were
introduced, and subsequently withdrawn and repealed, were based on a fundamentally flaw ed
perception that the Australian mining sector was not paying its fair share of tax and royalties.
These policy proposals posed a threat to the international competitiveness of the Australian
resources sector, and perhaps more significantly, undermined investor confidence, endangered
fiscal stability and increased the level of sovereign risk in Australia.
5. Glencore Taxes and Royalties
Glencore complies with taxation laws and financial reporting obligations in Australia, and pays all taxes
that are due.
(i) Transparency & Accountability
The Glencore Group has over 200 Australian subsidiary companies. The majority of these h ave
been inherited through acquisitions and mergers (see Figure 2), including the public acquisitions
of the Viterra grain group in December 2012 and the Xstrata mining group in May 2013.
Following these acquisitions, Glencore has undertaken a process to simplify the Australian
corporate structure, which will from 2015 allow for a single set of Australian financial statements
to be prepared for the Australian mining businesses.
Our business is subject to the requirements of the Australian Corporations Act and Australian
Accounting Standards for financial reporting, and the Australian Taxation Office (" ATO") for tax
compliance. Our statutory accounts are audited by a globally recognised independent auditor
firm and like other companies operating in Australia, our tax arrangements are subject to
detailed and regular scrutiny by the ATO.
We also participate, or will participate, in the follow ing tax disclosure programs:
ATO tax transparency disclosure;
Extractive Industries Transparency Initiative (of which Glencore is a member);
Proposed European Union directive disclosure of tax payments; and
Proposed OECD country by country reporting of tax payments.
Glencore has an open and transparent relationship w ith the ATO, and participates in the ATO's
pre-lodgement compliance review program. This involves regular meetings with the ATO,
together with ongoing ATO risk reviews, based on detailed information provided in our annual
Australian tax returns.
Glen core is committed to an open and constructive dialogue with the ATO. Australian tax law is
complex, and on occasions w e may adopt a different view on the interpretation or application of
these tax laws. Where agreement cannot be reached we reserve the right to contest matters to
ensure certainty for the company.
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Corporate tax avoidance
Submission 52
There is widespread domestic and international recognition that Australia already has some of
the most comprehensive tax laws, particularly regarding transfer pricing and general antiavoidance rules - both of which have been significantly strengthened in recent years.
Based on our ongoing engagement with the ATO, we have not seen any deterioration in the
capabilities or competency of the ATO. We note that the ATO has in recent years recruited senior
staff from the advisory accounting and law firms to enhance its existing technical capabilities.
(ii) Tax & Royalties
Glencore is a significant contributor of both taxes and royalties to Federal and State Governments
in Australia. Since 2007 to mid-2014 our businesses in Australia have paid approx. $8 billion in
taxes and royalties.
Figure 3: Taxes and royalties paid since 2007
Corporate tax
Federal Government
Total
$1,180 m
$3,247m
$3,747m
$998m
$4,745 m
$3,747m
$2,178 m
$7,992m
$2,067m
State Government
Total
Company payroll
and other taxes
Royalties
$2,067m
In addition to corporate taxes, we are responsible for various other Australian taxes, which
include licence fees, property taxes, withholding taxes, employer-related payroll taxes and other
tax payments, as required by the applicable tax laws.
Glencore continues to pay significant State mineral royalties, which are calculated predominantly
on the selling prices of mined commodities - as opposed to net profits.
Some media commentators have dismissed these royalty payments as irrelevant, however, it
must be noted that the royalty streams enjoyed by State Governments arise because mining
investors such as Glencore are prepared to take on significant economic risk and invest capital
with a long term perspective into mines and infrastructure. Throughout the operational life of
these mines, they pay royalties, irrespective of whether or not they are profitable and irrespective
of whether they ever return a single cent of the capital invested. For example, Glencore's recent
$1.4 billion Ravensworth North coal mine expansion is estimated to generate mining royalties for
the NSW Government of $1.5 billion over its life.
(iii) Impacts on our profitability and tax contributions
The Australian mining industry has faced significant challenges over recent years, including
material volatility and reductions in commodity prices, high input costs and until recently, a
strong Australian dollar. For example, the prices of coking coal and thermal coal have fallen 72%
and 52% respectively from their 2011 peaks. Similarly the price of copper has significantly
dropped, reaching a five year low in January 2015. These factors have significantly impacted
Glencore' s Australian operations' profitability.
Glencore's total tax paym ents h ave been compared by some m edia commentators to the tax
payments of other major mining companies. This is a highly misleading comparison as each
mining company has a different commodity mix, scale and cost profile of its operations. For
example, Glencore does not own iron ore mines, which for the major iron ore producers h ave
generated significantly higher earnings in recent years compared to the coal sector, wh ere a
significant proportion of Australia's coal mines have been operating at a loss.
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Corporate tax avoidance
Submission 52
6. Australian Tax Reform
Glencore, as a major foreign investor in Australia, seeks a stable and internationally competitive regime
for its Australian mining and agricultural operations and projects.
Despite the current market and cost pressures, we are optimistic that Australia can continue to grow and
sustain a vibrant resources and commodity sector that should be a source of ongoing national pride and
economic benefit for all Australians.
Glencore supports a clear policy vision for Australia that lays the foundations for an open, innovative,
productive and competitive economy. We believe a number of key policy reforms are needed to deliver
this vision and strengthen investor confidence.
They include a responsible policy framework to deliver long term fiscal stability rather than a focus on
short term revenue gains at the expense of future investment growth. We support an approach that
considers long term investment horizons and involves genuine consultation with business.
Glencore supports the inclusion of the following guiding principles regarding company taxation as part
of any tax reform process in Australia:
•
Consultation - Genuine tax reform should be developed as part of an open, informed, fact based
dialogue between the government, industry and other stakeholders.
•
Prospectivity - Changes should not disadvantage historical investments, nor should they give
unfair advantage to new entrants. Applying new rules retrospectively undermines investor
confidence and increases Australia's sovereign risk for future investment.
•
International Competitiveness - Any tax reform must ensure that the Australian resources
sector remains competitive with other resource rich nations.
•
Equitable and Efficient - Tax reform should promote economic growth and improve the
simplicity and fairness of the system.
•
Investor Certainty - In order to take on the risks involved in making substantial, long term
capital investments, companies need certainty that the tax rules will not change arbitrarily
during the life of an operation. If Boards of directors perceive the level of uncertainty or risk is
too high, capital will be invested elsewhere.
ENDS
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Corporate tax avoidance
Submission 52
ATTACHMENT 1
GLENCORE
Australia Tax actsheet
Australia is a major part of Glencore's global business. We employ over 19,000 people in Australia
(including contractors) across industries that include coal, copper, grain, nickel and zinc. We are
proud of the contribution we make in Australia which extends far beyond our tax payments to State
and Federal Governments. Over the past 15 years our business has invested billions of dollars into
our operations, on local goods and services and in support of our local communities.
•
Glencore complies with all our tax and financial reporting
obligations in Australia.
•
Recent media reports on corporate taxation in Australia have
made inaccurate claims against Glencore. These reports
demonstrate a poor knowledge of fundamental accounting
and taxation principles.
•
Since 2007, Glencore operations have paid about $8 billion
in taxes and royalties to Australian Federal and State
Governments, induding$2 billion in corporate income tax
which is paid on profits, not revenue.
•
Our business is cyclical, highly capital intensive and
investment is long term in nature. Our profitability is
impacted by commodity prices, exchange rates and the cost
of doing business in Australia.
•
Glencore's investment decisions are influenced by the
competitiveness and stability of a country's regulatory and
fiscal framework.
•
Taxation policy and legislation is set by governments - not
companies. Glencore abides by the same tax rules as other
multinational and domestic miners operating in Australia.
•
We support a constructive and informed public debate around
taxation reform in Australia because it is directly linked to the
future of investment and trade competitiveness of Australia.
$8 billion
PAID IN TAXES AND ROY TIES BY GLENCORE
OPERATIONS TO AUSTRALIAN GOVERNMENTS SINCE 2007
$19 billion
INVESTMENT IN AUSTRALl..N PROJECTS AND OPERATIONS
SINCE 2007 (NOT INCLUDING CAPITAL INVESTMENT ON
MERGERS AND ACQUISITIONS)
$8 billion
SPENT ON GOODS AND SERVICES IN AUSTRALIA IN 2013
All figures 110/ed i11 ll1is facts11ed are represt:11/ed
i11 Australian dollars (AUD).
Taxes and royalties paid since 2007
COM PA
CORPORATE TA
Federal Government
2,067m
State Government
Total
ROYALTI ES
$2,067 m
TOTAL
$1,180 m
S3,247m
$3,747m
S998m
$4,745 m
S3,747 m
S2,178m
S7,992 m
Glencore makes significant investments across the entire supply chain in Australia from exploration and production throug h to
processing, refining, handling, storage and u ltimately transportation to o ur customers around the world.
8