Oroya Mining is a small exploration company and Alcoa is one of the state’s biggest companies, but despite their size difference they have run into a very similar tax problem.
Oroya Mining is a small exploration company and Alcoa is one of the state’s biggest companies, but despite their size difference they have run into a very similar tax problem.
Both Oroya and Alcoa have received surprisingly large tax assessments from the state government for transactions that occurred five years ago; and they are not alone in getting big stamp duty bills.
Treasury has reaped nearly $200 million this year from “large, one-off transactions”, according to its mid-year financial projections statement, and is expected to receive at least a further $100 million when it completes its assessment of BHP Billiton’s takeover of WMC Resources.
The assessments have highlighted wide concern in the resources sector about tax rules that capture so-called ‘land-rich’ companies in the stamp duty net.
The land rich rules were introduced in the 1980s as a tax avoidance measure, to stop property investors shifting assets into a company to minimise stamp duty.
They have been progressively widened to the point where virtually all mining companies are judged to be land rich and must therefore pay stamp duty on the value of “land” purchased in WA.
When the government introduced the latest changes – extending the rules to listed companies and reducing the land-rich threshold to 60 per cent – it estimated they would raise just $6.1 million per year.
But a historic analysis by the Chamber of Minerals & Energy, and observation of recent transactions, indicate the changes would raise about $75 million a year.
The contentious assessments, like Oroya and Alcoa, also highlight the business risk facing companies that may receive a tax bill several years after a transaction is completed.
“For a small business it is difficult,” Oroya chairman Ken Lim said.
The Oroya dispute stems from its $6.4 million acquisition of the Mt Gibson gold project in 2001; a project that was recently sold again, this time to Legend Mining.
Mr Lim said the company had already paid about $150,000 in stamp duty on the original transaction, and has been told it must pay a further $285,253.
He said the company would object to the assessment.
“Given that Oroya made full repayment of the original stamp duty assessment issued by the Office of State Revenue for the transaction in 2002, Oroya does not agree with this additional stamp duty assessment,” Mr Lim said.
He said an added concern was that the new assessment was initially sent to the company without any explanation.
Ernst & Young tax principal Celia Searle said she shared concern about the current assessment process.
“We are in favour of a lot more dialogue in the process so that clients don’t get an unexpected surprise,” Ms Searle said.
The Oroya dispute followed Alcoa’s announcement late last year that it would contest an assessment for $US120 million ($A160 million) in stamp duty.
That related to the $2.7 billion sale of its controlling stake in the Worsley Alumina refinery to BHP Billiton in 2001. Alcoa is liable for any extra stamp duty because it agreed to indemnify the purchaser, BHP Billiton.
Other companies to have run into stamp duty disputes include Westralia Airports Corporation, which successfully challenged a $40 million assessment following a restructuring of its ownership.
In a submission to the state tax review, the Chamber of Minerals & Energy called on the government to repeal the land-rich provisions for listed companies.
Its fall-back alternative is a series of amendments to the listed and unlisted land-rich provisions to bring them into line with other states.
It has suggested that the $1 million threshold, which was set in 1986, should be increased to reflect increases in land values.
The chamber has also suggested that exploration tenements should be excluded from the definition of land and that assets like mineral stockpiles, sales contracts and mining intellectual property should be included.
It believes this would bring the treatment of mining companies into line with companies in other industries.
