Singapore doesn't condone tax abuse, MOF says, after reports of Aussie mining giants using the Republic as tax shelter

SINGAPORE - Singapore does not condone any abuse of its tax system, a Ministry of Finance (MOF) spokesman said on Tuesday, in response to a Straits Times query following media reports that the Australian government is pursuing global miners BHP Billiton and Rio Tinto for channelling billions of dollars in iron ore profits through companies in Singapore that pay almost no tax.

According to the reports, the Australian Taxation Office is chasing multibillion-dollar claims each against BHP and Rio for their Singapore marketing operations that save the two companies more than A$750 million (S$779.28 million) a year in Australian tax.

The MOF spokesman said the Singapore Government adopts internationally endorsed transfer pricing guidelines that require taxpayers to adhere to the arm's length principle for related party transactions. Profits brought to tax in Singapore must also be commensurate with the functions performed, assets used and risks assumed by the Singapore companies.

"As a global business city, Singapore is a natural gateway for companies looking to expand in emerging Asia," she said.

"Mining companies find Singapore an attractive base to conduct their marketing operations as there is a strong ecosystem of metals and minerals players in Singapore... Many top steel-producing companies and multinational metal and mineral traders also have their operations here."

Singapore thus serves as a platform for these key market participants to trade with one another, she added. Singapore's efficient legal system, highly skilled workforce, developed shipping and logistics industries, political and economic stability are also attractive for companies choosing Singapore as a centre for their marketing operations, she said.

Both BHP and Rio say their Singapore companies were not set up to cut tax but to be closer to their customers. BHP added that it employs around 400 people in its marketing team in Singapore.

According to Reuters on Tuesday, BHP runs most of its Singapore operations through the branch of a Swiss entity, BHP Billiton Marketing AG. In 2013 it posted revenues of US$38.6 billion and a gross profit of US$996 million, with zero income tax expense, according to company records filed in Singapore.

Rio Tinto operates a number of subsidiaries in Singapore, including Rio Tinto Singapore Holdings, which posted a gross profit in 2013 of US$997.4 million and paid income tax of around US$96,106, and Rio Tinto Marketing, which posted a gross profit of US$295 million and paid income tax of around US$14.9 million.

Ms Seow Jia Xian, tax partner at Rodyk Davidson, said that Singapore is an attractive jurisdiction for tax purposes, not only due to its relatively low corporate tax rate, but also because of its extensive double tax treaty network.

"However with the strong political support shown and growing awareness and attention on the Base Erosion and Profit Shifting (BEPS) Project launched by the Organisation for Economic Cooperation and Development (OECD), the pressure on multinational companies to review, and to be able to justify their transfer pricing arrangements, is steadily mounting in an increasingly transparent global tax reporting landscape," she said.

She noted that while Singapore is not an OECD-member country, the Inland Revenue Authority of Singapore had in January released a second edition of transfer practice guidelines, in alignment with the OECD BEPS objectives on the matter.

BHP, Rio and Fortescue Metals Group are due to appear on Friday at a hearing called by Australia's Senate as part of a wider review of tax avoidance by multinationals.