TAX NEWS - JUNE 2010

Merger, not new resource super-profits tax, alarms Japan

Japan has quizzed the Rudd government over the contentious resource super-profits tax, raising the matter with Trade Minister Simon Crean.

Mr Crean revealed yesterday that his Japanese counterpart, Masayuki Naoshima, had brought up the tax during a phone conversation with him two weeks ago.

He said Mr Naoshima had requested more information about the tax rather than criticising it, and that the Japanese government and industry were more concerned about BHP Billiton and Rio Tinto's venture in the Pilbara.

In an interview with The Australian in Tokyo yesterday, Mr Crean said he had explained the tax to Mr Naoshima and invited the Japanese government and industry to raise any concerns.

"They want to know what it means, so it's been a good opportunity to explain that this tax would actually increase investment in mining because it effectively eliminates the royalties, and royalties are an upfront disincentive to investment because you have to pay them before you produce anything," Mr Crean said.

He expected the tax would be raised at business functions he was addressing in Tokyo yesterday, but the BHP-Rio joint venture was of far greater concern in Japan.

"What constantly gets raised with me . . . is the concern about the BHP-Rio merger of facilities, because Japan is concerned that that will be a lessening of competition," he said.

"For all the hype about the mining sector saying the tax is a disincentive to investment and there's concern about overseas investors, the concern that's being raised is the merger.

"That issue has been raised on every occasion I have had meetings, not just by Japan, but also by China, Korea and Europe."

Mr Crean, who was in Japan for an Asia-Pacific Economic Co-operation trade ministers meeting over the weekend, had discussions with Japanese Foreign Minister Katsuya Okada.

The mining tax was not mentioned, and Mr Crean said Mr Okada stressed Japan's desire to finalise the proposed free-trade agreement with Australia, and agreed not to let differences on whaling sour the overall relationship.

Mr Crean, who also addressed a symposium on the FTA in Tokyo yesterday, said South Korea had leapfrogged Japan in progress on the respective FTAs.

"Korea is the one that's making the best progress," he said.