The Australian Taxation Office (ATO) can confirm a settlement (PDF 81.3KB) has been reached with BHP to resolve a longstanding dispute in relation to their Singapore marketing hub.
Deputy Commissioner Jeremy Hirschhorn said this is an important development in the ATO’s marketing hub strategy.
“While confidentiality provisions prevent us from commenting on specific details of the settlement, we are confident that a fair and reasonable outcome has been achieved for the Australian community,” he said.
“BHP has announced that the ATO’s actions have secured approximately $0.5 billion for the Australian taxpayer for past years, over and above the tax returns originally filed.
“However, the more important announcement is that going forward, BHP is coming within the ATO’s ‘green zone’ for marketing hubs, and all the profits from their sale of Australian owned commodities will be taxed in Australia.
“This is a landmark and precedential development in the execution of our marketing hubs strategy, and sends a strong signal to other industry participants.
“Given the importance of mining and natural resources to the Australian economy, it is critical that exporters of Australian commodities, whether iron ore, coal, gas or other commodities, pay the correct tax in Australia on their profits.
“The ATO has had a significant focus on marketing hub arrangements to ensure profits generated in Australia, are taxed in Australia,” Mr Hirschhorn said.
Marketing hubs typically provide marketing and sales functions for goods or commodities that are produced in Australia and sold offshore.
Last year the ATO set out a risk framework in relation to transfer pricing issues for marketing hubs.
“We are increasingly using guidance materials to set out what we consider to be acceptable behaviour, particularly in the areas of transfer pricing (versus mis-pricing) and tax planning (versus tax avoidance).
“By identifying ‘safe zones’ we help taxpayer’s self-assess their own arrangements, and therefore the likelihood and extent of any ATO compliance activity,” Mr Hirschhorn said.
The ATO considers a number of factors before entering into a settlement with a taxpayer.
“We use litigation where we believe a point of law requires clarification or we need to call out unacceptable behaviour.
“The ATO will only agree to a settlement after careful consideration of the risk to revenue, precedential value of the dispute, and likelihood of success in litigation.
“When settling disputes with taxpayers in the large market we also seek to ‘lock in’ future compliance outcomes based on our ‘safe zones’ to secure revenue and create certainty for the future.
The ATO has also taken steps to provide greater public confidence around large ATO settlement activity, and publishes statistics of settlements in different client segments in its Annual Report each year.
“I want to assure the Australian community the ATO does not settle matters at any cost or give favourable settlements to the large end of town.
“In fact, the evidence clearly shows that settlements with public and multinational businesses are consistently tougher than in any other market.”
The ATO has also engaged four former Federal Court judges to independently assure the largest and most significant settlements.
“We recognise that there is a legitimate public interest in the quality of ATO settlements, particularly with public and multinational businesses, but an interest which needs to be balanced against taxpayer confidentiality.
“To address this concern, we have appointed leading former judges to review the settlements on the Australian community’s behalf, as experienced and objective scrutineers.
“To date the judges have concluded the ATO’s treatment of each and every settlement involving a public group or multinational taxpayer has resulted in a fair and reasonable outcome for the Australian community,” Mr Hirschhorn said.
“This should be of great reassurance to any who are concerned about the quality of ATO settlements.”
The Australian National Audit Office (ANAO) in its independent review has also found the ATO is effective, comprehensive and fair in using settlements to resolve taxpayer disputes, and provides more transparency to the public than any other comparable country.
More information
The ATO’s approach to marketing hubs is set out in Schedule 1 of Practical Compliance Guideline PCG 2017/1 ATO compliance approach to transfer pricing issues related to centralised operating models involving procurement, marketing, sales and distribution functions.
The PCG sets out the ATO’s risk framework in relation to transfer pricing issues related to centralised operating models involving procurement, marketing, sales and distribution functions.
This framework helps to shift taxpayers that have marketing arrangements in the high risk zones to the low risk zones. Under the PCG, taxpayers are also able to reach agreement with us on their transfer pricing outcomes and move to what is known as the safe zone (‘white’ zone).
To read the ATO’s guidance see PCG 17 ATO.
