Wednesday, 18 June 2014

Glencore Xstrata and tax avoidance

Michael West in Gushing Glencore converts tax flow into tiny trickle notes how Glencore Xstrata manages to pay virtually no company income tax in Australia on its revenue:
Lo and behold, Glencore had booked cash of almost $15 billion from coal mining in Australia in the past three years and had effectively paid zero tax. They make roughly $5 billion a year from copper, zinc and nickel too, but we'll stick with coal today as it would take another two weeks to dig out the rest of the accounts.

Anyway, the boys from Zug - the Swiss tax haven from which Glencore sprang - did actually pay some tax. They managed to ''leak'', as they say in the trade, just $507 million in income tax, on cash receipts of $30 billion. That's roughly 1.7 per cent leakage in seven years.

Tax is levied on profits, or course, not on sales. Cash is more relevant though, since multinationals engage in the practice of transfer pricing; that is, siphoning profits out of this country, where the corporate tax rate is 30 per cent, into more tax-amenable jurisdictions.

Here they were, drowning in cash - the biggest coal boom in history was in full swing - but what does Glencore do? It borrows billions from its parent and other associates overseas and pays them interest on these loans of $1.4 billion. That's flair for you. Get the money out, and saunter off with a tax deduction on your interest payments to boot.

And that is just profit shifting via a few loans. Of Glencore's $4.3 billion in sales last year, some $1.97 billion worth were made to related parties.

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