TAX NEWS - June 2010

BHP Billiton enticed by Liberia tax rate

BHP Billiton's plan to ramp up its West African iron ore project will be bolstered by a more competitive tax rate than the Rudd government's controversial resource super-profits tax.

The head of Liberia's National Investment Commission said BHP's iron ore mining development agreement with the country would allow for a maximum effective tax rate of 30 per cent and royalties of 3-5 per cent.

Australia's proposed RSPT, which has been strongly opposed by BHP chief executive Marius Kloppers, features a 40 per cent tax on the sector and a tax credit for state royalties.

Liberia's National Investment Commission chairman, Richard Tolbert, outlined the tax rate for the West African project in an interview with Dow Jones Newswires. He said agreement was worth between $US2 billion ($2.3bn) and $US3bn.

"I think the (Liberian) fiscal regime is as fair for the country as possible but we've also tried to be competitive with international standards," Mr Tolbert said.

"It's considerably more generous than what they're getting in Australia."

BHP has consistently argued that the RSPT could lead it to prefer overseas expansion to Australian projects.

One analyst said West Africa was well endowed in iron ore, and with all the big players over there, it would become a major iron region. "The Australian government has fostered the expeditious development of that process," he said.

BHP has said that the Rudd government's new tax would increase its total effective tax rate of its profits earned from Australian operations from about 43 per cent to about 57 per cent in 2013.

Mr Tolbert said the maximum corporate income tax rate in Liberia was 25 per cent, though it could be raised to 30 per cent for the mining industry. In BHP's agreement with Liberia, some provisions allow for more than 25 per cent to be taxed.

"We have been able to put some special provisions in which could take the effective tax rate up to 30 per cent," Mr Tolbert said.

One analyst said the tax rate proposed for Liberia was similar to what BHP was paying in Australia. "If they are set to pay that in a fiscal agreement for the life of the asset, then they will be locked in and won't have a Kevin Rudd to come in and change it," he said.