Rio Tinto agreed to pay A$613 million (US$424 million) to the Australian Tax Office on Wednesday, July 20, to resolve a tax dispute over allegations of profit shifting through its marketing centres in Singapore.
The settlement means Rio Tinto will not face double taxation between Australia and Singapore.
Peter Cunningham, CFO of Rio Tinto in London, welcomed the end of years of disputes with the ATO.
“We are glad to have resolved these longstanding disputes and to have gained certainty over future tax outcomes relating to our Singapore marketing arrangements,” he said.
“Rio Tinto remains committed to our commercial activities in Singapore and the valuable role played by our centralised commercial team,” he added.
The pay-out will rank as one of the biggest tax settlements by the ATO. The multinational company will pay the sum in addition to the already paid A$378 million in a previous agreement, bringing the total close to A$1 billion in tax penalties.
The ATO settlement includes $55 million of interest and $22 million of penalties.
Through TP arrangements, Rio Tinto reportedly lowered its tax bill in Australia via marketing hubs established in Singapore.
The tax dispute dates back to 2017 when the ATO launched an investigation into Rio Tinto’s marketing operations over its 2010 tax returns. In 2021, the office also pursued the company for its intra-group dividend financing.
Rio Tinto’s settlement with the ATO will set a precedent for other multinational companies to follow. Rebecca Saint, deputy commissioner at the ATO, said it was a good outcome for the Australian tax system.
“This means that additional profits from the sale of Rio’s Australian-owned commodities will be taxed in Australia in the years to come,” she said.
“The resolution of these matters means that ordinary Australians can have confidence that even the biggest companies are held to account to pay their tax due.”
UK publishes global minimum tax draft legislation
The UK has come closer to implementing the global corporate minimum tax rate of 15% with the publication of draft legislation on Wednesday, July 20.
The UK government published the draft legislation for consultation with the intention that it would come into effect on December 31 2023.
Once enacted, the legislation will introduce the income inclusion rule, one of the key flanks of the global base erosion rules, in the form of a multinational top-up tax. The model rules aim to ensure that large multinationals pay an international minimum effective tax rate of 15% in the countries where they operate.
The outline of the multinational top-up tax includes a detailed procedure for determining the amount of top-up tax owed by businesses and where within the group of companies it should be paid.
The minimum corporate tax rate will apply to multinationals with annual global revenues of more than €750 million ($765 million) with business activities in the UK.
This means a new tax will be levied on UK parent entities within the multinational group either under direct or indirect ownership. This tax will be charged on the UK entity when a subsidiary is in a non-UK jurisdiction and the profits arising in that jurisdiction are taxed at less than 15%.
Countries will be able to work together better to enforce the rules consistently and to ensure firms pay the right amount of tax. The draft legislation follows another consultation on the UK implementation of pillar two, which closed in April.
Investigations pressure US lawmakers to adopt minimum tax
As ITR reported this week, tax directors are awaiting scrutiny of the benefits gained from the US Tax Cuts and Jobs Act as Senate-led investigations mark waning tolerance for corporate practices.
Sources say that a July report from the Senate Finance Committee’s investigations into the pharmaceutical industry could influence ongoing negotiations on the Build Back Better bill.
The pending legislation would implement important international tax reforms including an OECD-backed global minimum tax rate, which is meant to be enacted by 137 countries by the end of 2023.
The Senate Finance Committee’s interim report, from July 7, scrutinised how pharmaceutical company AbbVie booked 99% of its income in foreign subsidiaries despite 75% of its sales being made in the US.
According to the report, this was not an isolated example and it blamed provisions from the 2017 TCJA that allowed AbbVie and other drug companies to – completely legally – cut their US tax liabilities.
A tax leader at Procter & Gamble in Ohio said the report might be a stepping stone to enacting stricter tax policies that are being debated in Congress. The report could influence the Senate’s minimum tax debates too, which are seemingly at a standstill until the end of the legislating session on August 5.
G20 talks bolster tax transparency efforts in Asia
In other ITR news this week, the G20 finance ministers’ talks in Bali ended with a tax transparency agreement, but the war in Ukraine hindered multilateral policy-making.
India and several countries signed the Bali Declaration during the G20 talks, from July 11 to 17, but the level of support falls short of Indonesia’s hopes for a stronger consensus.
Indonesian Minister of Finance Sri Mulyani Indrawati had been chairing the meetings on tax. She used the role to promote enhancements to the automatic exchange of information (AEOI) framework, global minimum corporate taxation, and carbon pricing policies.
The Bali Declaration commits Asian countries to increasing cooperation and information exchange. This includes fully implementing the tax standards from the OECD’s Global Forum on Transparency and Exchange of Information.
Zayda Manatta, head of the secretariat of the Global Forum in France, said she wants to see countries improve shortcomings in the AEOI framework ahead of compliance ratings, due at the end of 2022, on how effective the framework is in each country.
“The increase in the information available to tax authorities to ensure tax compliance under the AEOI is especially important at this time when national budgets have been strained to respond to the COVID-19 pandemic and there is a wide search for ways to mobilise domestic revenue,” said Manatta.
The Bali Declaration received 11 signatures from ministers in Hong Kong, India, Singapore and other Asian countries that are part of the Global Forum, on July 14.
Indrawati said: “An initiative on tax transparency for Asia is an opportunity to develop regional co-operation and better combat tax evasion and other illicit financial flows.”
The Bali Declaration is the latest tax transparency initiative in Asia since the milestone pact under the Asia Initiative, which set a wide exchange network for tax information across most countries in the region.
Other ITR headlines this week include:
Dutch decree falls short of TP certainty
UK businesses could have gained billions from EU VAT reform
Firms urged to review chain transactions VAT to avoid legal cases
US Treasury presses minimum tax despite Senate disapproval
China raises tax certainty in Shenzhen with collaborative TP management
Next week in ITR
The OECD’s global minimum tax under pillar two needs a legislative breakthrough, but sources say it is in no country’s best interest to be the first to enact draft legislation. ITR will also be analysing the state of play in digital tax reform.
At the same time, investors are increasingly turning to tax-transparent investment vehicles over opaque structures. These funds have seen rapid growth in the last decade as these structures offer investors more certainty and lower tax costs.
Meanwhile, ITR will be analysing the implications of transfer pricing documentation guidance for businesses operating in the UK. The government published new guidance on July 20 and taxpayers are considering what it means for them.
In other news, ITR will be looking at how tax directors are dealing with talent retention challenges and the strategies they are using to keep staff happy while facing fierce global economic winds.
Readers can expect these stories and plenty more next week. Don’t miss out on the key developments. Sign up for a free trial to ITR.
