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Wednesday, 14 January 2015

The Glencore tax gaffe the media can’t tell you about –

The Glencore tax gaffe the media can’t tell you about –

The Glencore tax gaffe the media can’t tell you about


Glencore took a risk appointing the former head of BP as its
director of environment and safety. But a blunder committed while under
Chatham House rules suggests he remains as gaffe-prone as ever.









The world’s biggest coal miner, Glencore, took a calculated risk when it appointed director Tony Hayward as chairman last May.


Hayward was chief executive of BP during the largest
offshore oil spill in US history, the 2010 Deepwater Horizon disaster,
and it is probably not exaggerating to say for a while he was a leading
candidate for most unpopular person in the world, right up there with
late dictator Kim Jong-il or Iranian fanatic Mahmoud Ahmadinejad.



BP is still mired in lawsuits resulting from the spill,
which will run for years and many more billions in compensation. The
gaffe-prone Hayward upset Americans from spill victims to President
Obama when he complained, in the middle of the crisis, “I want my life
back”.



Hayward lost his job at BP in October 2010 and was made
Glencore’s director of environment and safety in 2011. He assumed the
chair on an interim basis after institutional investors revolted against
former chairman John Bond during the hard-fought merger with Xstrata.
Glencore’s shareholders were none too happy about Hayward’s permanent appointment but the board persevered, propelling something of a stellar comeback for Hayward.



You might remember that Swiss
giant Glencore is one of the multinational companies squarely in the
frame as a senate parliamentary inquiry gets underway into tax avoidance
through schemes to shift profits from higher tax jurisdictions to lower
tax jurisdictions using techniques like transfer pricing and thin
capitalisation.



This sensational story by
Fairfax Media’s Michael West last June, informed by a confidential
source and former multinational executive, suggested Glencore had paid
almost zero tax on its Australian coal business over the last three
years. Furious, Glencore countered that it had paid $400 million in
taxes in Australia over the same period — its accounts filed here are so
opaque, there is actually no way of knowing — and launched an attack on
West, accusing him of failing to understand that companies paid tax on
profits, not sales, although West himself had made precisely that point
in this earlier story.



It’s safe to say that tax is a hot-button issue for the miner — but Crikey
can reveal that Hayward gave at the very least a misleading answer when
asked about the issue just before Christmas at an Australian Institute
of Company Directors lunch in Melbourne. The lunch was strictly Chatham
House rules, meaning attendees could not source anything revealed, but Crikey didn’t attend the lunch and we’re therefore not bound by the rule.



According to Crikey’s informant, Hayward continued
the attack on West at the Melbourne lunch, but appears in the process to
have overstated the amount of tax Glencore paid by an order of
magnitude. Asked how much tax Glencore had paid in Australia, Hayward
responded:



We paid a billion dollars in
tax last year; we paid a billion dollars in Australia, we paid a billion
dollars pretty much every year for the past seven or eight years. It’s
very transparent, we don’t have complicated tax structures. We pay tax
on profits not revenue. There’s been a lot of very strange reporting in
the press here about taxes on revenues, that’s not what people pay taxes
on, we pay them on profits as everyone in this rooms knows.”

Hayward was then asked, “What percentage on your profit do you pay — what is a billion dollars as a percentage of your profits?”


He replied:


I honestly don’t remember what
the actual recorded profit is in Australia but no it wouldn’t be 20-30
per cent. We haven’t made a lot of money in Australia the last few years
because we don’t have a big copper business here. We have a big coal
business and the coal price has been very depressed.”

A Glencore spokesman would not comment on anything said at
the lunch, given the Chatham House rule, but repeated a claim the
company has made before, that it has paid $8 billion in taxes and royalties in Australia since 2007.



Did Hayward make the overstatement deliberately? Or did he
mistake royalties (payment for a resource) with taxes (a compulsory
unrequited transfer)? Either way, it is another Hayward gaffe, and
Glencore’s risky appointment is looking even less well calculated.


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