Rio Tinto is challenging a decision by the Australian Commissioner of Taxation to hit the mining group with an additional tax of $447 million.
The amount, made up of $379 million plus interest of $68 million, is related to what is known as transfer pricing between Rio Tinto’s Australian operations and its Singapore office.
Transfer pricing, a way of moving profits to a low taxing country, is a common form of legal tax avoidance used by resources companies.
BHP, the world’s biggest mining company, is also in dispute with the tax office over a bill of more than $1 billion related to the sale of commodities via a method sometimes called the Singapore tax sling.
The federal government is cracking down on multinational companies booking revenue in other jurisdictions with lower tax rates.
Legislation, sometimes known as the Google tax, bringing in a 40% tax rate on multinational companies that use overseas tax havens to avoid paying tax in Australia, passed the Senate last week.
The Australian Tax Office is getting $679 million in extra funding over four years for a task force to ensure multinationals, private companies and wealthy individuals pay the right amount of tax.
In this case, Rio is quick to point out that the amended assessments do not relate to any tax avoidance schemes and no penalties are payable.
The company says the assessment for the calendar years 2010 to 2013 results in double taxation. Rio Tinto will seek double taxation relief in accordance with the Australia-Singapore double tax treaty.
“The issue in dispute is the pricing of certain transactions between Rio Tinto entities based in Australia and the Group’s commercial centre in Singapore,” Rio said in a statement to the ASX.
“Rio Tinto voluntarily approached the ATO more than a decade ago seeking to confirm its pricing arrangements. The transfer price in dispute is in line with an outcome agreed by the ATO for years prior to 2010.
“Rio Tinto considers that its pricing is in accordance with the internationally recognised OECD guidelines and Australian domestic law.”
The company says it will challenge the amended tax assessments, but will pay 50% this month.
“This payment would be in addition to the $25.5 billion of taxes and royalties Rio Tinto paid in Australia during the same four-year period,” the company says.