29 June 2015
Peter Beaven, BHP Billiton Chief Financial Officer
Originally Run in The Australian Financial Review, 29 June 2015
As China’s growth recedes from exponential to enviable, with commodity prices following suit, geology and geography won’t be enough to guarantee Australia’s ongoing growth. If Australia is to generate new, high-paying jobs and better opportunities for our children, we must address the nation's productivity challenges.
For a range of reasons, productivity has deteriorated in Australia with some industries no longer able to compete effectively in the global market. And while a weaker Australian dollar provides some short-term relief, it’s not enough.
We have to examine the fundamentals that support productivity: developing the talents and skills of our people – the most important resources of all; the road, rail and port infrastructure to make us a truly efficient trading nation and incentivising and developing the technology and innovation to produce more today and support the jobs of tomorrow.
Crucial to our efforts to lift productivity will be the access to capital needed to unlock new resources and apply new technology. Competition for increasingly globally mobile capital will only increase. Capital will flow to investment opportunities in Australia when we get the balance between risk and return right. To attract new capital, one of the critical factors is ensuring we have a globally competitive taxation regime – which means we need a competitive tax rate and a system that is based on the principles of simplicity, stability, sustainability, transparency and fairness.
An informed debate around how to improve our tax system, centred on these principles, as well as an appreciation of today’s global reality, is needed. This debate must recognise the role that tax settings play in enhancing the productivity and growth - and BHP Billiton to wants to participate in this discussion.
Australia’s taxation system must continue to apply tax to activities that add value in Australia along the global supply chain. BHP Billiton generates profits from creating a value chain: exploring, mining, drilling, extracting, processing, shipping and marketing. We pay Australian taxes on the profits generated from the activities in the value chain carried out in Australia. We also generate additional profits in Singapore from the value-adding marketing and logistics functions of our 400-strong marketing team based there: customer sales, freight, credit risk and market forecasting for commodities like iron ore. Our team ‘lives’ in Asia, close to our biggest customers in China, Japan and South Korea. The principle of applying tax where value is added is critical and works in Australia’s favour.
BHP Billiton’s economic contribution to Australia was around A$27 billion last year through payments to suppliers, wages and employee benefits, dividends, taxes and royalties – we were also the country’s largest tax payer. In 2014, BHP Billiton generated A$16.2 billion of profit in Australia from the production of Australian commodities – all subject to Australian tax. In the same year, our Singapore marketing organisation generated A$1 billion in profits, mostly from the sale of Australian-sourced commodities but also from BHP Billiton operations in other countries.
Around 58 per cent (in line with our dual listed ownership structure between Australia and the United Kingdom) of this profit generated in Singapore from the sale of Australian commodities, is taxed back in Australia as a result of the Controlled Foreign Companies rules. Thus, almost 100 per cent of the value of Australian commodities, from production to end customer, is subject to the Australian tax net.
Overall, last year we paid more than A$8.7 billion in taxes and royalties in Australia. Like any individual tax payer, we can have disagreements with the Australian Tax Office. Right now, BHP Billiton and the ATO are in discussion over how much tax should be paid on our Marketing operations – these are technical, complex tax valuation and interpretation issues, not matters of tax avoidance. The publicised Marketing Hubs dispute, which represents less than 2 per cent of taxes and royalties over the disputed period, does not make BHP Billiton any less committed to our tax obligations or transparency.
Transparency is critical in the tax debate the world over. A tax regime that helps a country attract capital, must also have the community’s confidence. Transparency of tax payments and processes is important to engender the trust and understanding of the communities in which we operate.
For the last 15 years BHP Billiton has voluntarily disclosed tax payments to host governments in our annual Sustainability Report; and last year we were recognised by Transparency International as the world’s leading resources company for transparency reporting and disclosure.
Going a step further, in June 2013, the European Union adopted its Accounting Directive obliging extractive industry companies in member states to publicly disclose payments to governments on an annual basis. The UK has implemented the EU Directive and will require relevant companies listed in London to publicly report payments to governments on a country-by-country and project-by-project basis from 2016.
BHP Billiton supports the EU Directive and will voluntarily adopt these changes ahead of the directive and will release a global tax and transparency report later this year.
I am fiercely proud of the BHP Billiton’s contribution to Australia over the last 130 years. Through these debates, I hope we can challenge ourselves to be more competitive, so that Australia can ultimately attract the capital needed to grow and sustain higher standards of living for all.