20150202 Senate Committee on Corporate Taxation
Transcripción
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. 1 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 2 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 3 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. 5 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. 6 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 7 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