Productivity |  Quebec continues to catch up

Rio Tinto Singapore Sling | Payment of 1,000 million for unpaid taxes

The news went unnoticed, but gained interest with the resignation of Sophie Brochu. This is Quebec’s leading aluminum producer and major electricity consumer, Rio Tinto, to which our governments have provided generous tax and electricity grants.


Last July, therefore, the multinational resolved a tax dispute that had been in opposition to the Australian tax authorities for several years. The total payment amounts to almost 1,000 million Australian dollars (920 million Canadian)one.

The case, led by the Australian Taxation Office’s tax avoidance team, concerned unpaid taxes for the years 2010 to 2021. The issue concerned the transfer of certain profits to a more advantageous tax administration, in particular for the commercialization of iron ore and aluminum. .

Quebec is therefore not the only place where Rio Tinto wants to minimize its payments to the state. In a recent file I explained that the multinational pays practically no taxes to the Quebec government for its aluminum sector.⁠2. Essentially, Rio Tinto has benefited from various tax breaks from the federal and Quebec governments for years.

In this file, I also disclosed that aluminum smelters pay a significantly lower rate for their electricity to Hydro-Québec than what the Crown corporation finds profitable.⁠3. They can also emit greenhouse gases (GHGs) without paying carbon market offsets or taxes, unlike many other industries.

The advantages obtained in Quebec are such that Rio Tinto indicated in its 2017 annual report that the production costs of its Canadian aluminum smelters were among the lowest 10% in the world (85% of Canadian aluminum smelters are in Quebec). .

A “Singapore Sling” tax

Even so, the Australian tax authorities have questioned since 2015 certain practices that Rio Tinto had implemented in 2010 with its new product marketing center in Singapore, judging that they amounted to tax evasion.

Iron ore mined in Australia is the main product at stake, but the dispute also involves the company’s Australian aluminum. The deal also affects the way Rio Tinto financed dividend payments between affiliates, which had an impact on Australian tax.

In between, analysts call the tax planning used by Rio Tinto for its products the “Singapore Sling”, in reference to the famous cocktail.

Rio Tinto’s competitor, BHP Billinton, has also used it, as have many other companies. This is how the specialized site TP Cases describes this tax planning:

“The key is to sell products to a related entity in Singapore for, say, $50 a tonne. The Singapore company can then sell the ore to its customers at the list price of $70 per ton. Profits are booked in Singapore, not Australia, and the corporate tax rate in Singapore is much lower, around 15%. Therefore, companies can efficiently shift profits to these less-taxed destinations.

“While the Australian Revenue Office accepts that legitimate business (shipping, insurance and so-called marketing) takes place in Singapore, the question is whether the profits attributable to the Singapore hubs are reasonable. »

Status in Canada

In the 2016 annual report, former Rio Tinto chief executive Jean-Sébastien Jacques praised the use of the new center in Singapore to increase the organization’s productivity. The approach is called “mine to market” (from the mine to the market).

From this productivity perspective, Rio Tinto explains that the marketing of aluminum, 49% of which is produced in Quebec, is “supported by a single global sales organization managed [de] Singapore, charged with maximizing value across the entire product group,” read the 2017 annual report.

Rio Tinto further clarifies that it is in discussions with the Australian Revenue Office about the price of products transferred to Singapore. She does not mention any litigation with the Canada Revenue Agency, which it would be required to do if the file was significant.


PHOTOGRAPH BY CHRISTINNE MUSCHI, BLOOMBERG ARCHIVES

Aluminum cylinders at Rio Tinto’s Jonquière complex in Saguenay. Quebec’s aluminum smelters account for 49% of the company’s global production.

The Singapore hub today has 450 employees, representing less than 1% of Rio Tinto’s total workforce. For the multinational, one of the main objectives of the Singapore aluminum team is to develop, together with customers, “new applications that stimulate sales of value-added products”.

Joint au téléphone, le porte-parole de Rio Tinto au Canada, Simon Letendre, explain that the question des prix de transferts avec Singapore ne s’applique pas pour l’aluminium du Canada « puisque pratiquement tout l’aluminium fait ici est vendu en North America “.

Tax authorities, such as the Canada Revenue Agency and Revenu Québec, never make tax disputes with taxpayers public unless they challenge them in court. And upon verification, there is no dispute on this issue made by Rio Tinto before the Canadian Tax Court or the Quebec Court.

“Transfer pricing is audited by the Canada Revenue Agency like any other transaction,” Mr. Letendre tells me.

However, another case has been before the Tax Court of Canada since 2021, this time over deductions claimed by Rio Tinto for research and development in British Columbia (Kitimat plant). The two cases have an impact of some 26 million in taxes for Rio Tinto for the years 2016 and 2017, according to the legal process, which is ongoing.

The agreement with the Australian tax authorities does not put Rio Tinto at risk. The company had total revenue of $63.5 billion in 2021 and after-tax profit of $21 billion.

And to Rio Tinto’s credit, the multinational has been quite open about its tax practices with the Australian Taxation Office (ATO), according to available information. The ATO had also told a committee of the Australian Parliament in 2015 that the company had “been fairly transparent” about the Singapore hub.

At the time of the A$1 billion deal, ATO Deputy Commissioner Rebecca Saint said: “Even prior to this deal, Rio was one of Australia’s largest income tax payers for many years, with a solid record of engagement with ATO in relation to its tax matters, although there are some areas of litigation. »

However, the question arises: what contribution should we expect from a multinational like Rio Tinto due to its presence in a territory rich in resources like Quebec?

Is the aluminum industry really creating wealth, as François Legault wishes, knowing what it pays in taxes and electricity rates, knowing that its productivity per kilowatt hour is very low in this era of energy scarcity and knowing that their jobs, in decline, are very expensive for the State, especially with the shortage of labor?

1. More specifically, Rio Tinto must pay an additional A$613 million for the years 2010 to 2021, on top of the A$378 million in additional taxes paid on earlier claims that were part of the dispute. During this period, Rio Tinto paid nearly $80 billion in taxes and royalties in Australia.

2. If we add the federal government, its aluminum tax payments from Quebec are close to 4% of its world total, while its aluminum smelters in Quebec account for 49% of its world production.

3. Rio Tinto benefits from even more advantageous conditions for 90% of its electricity needs by producing its own energy. Governments granted it the right to produce this energy in two ways: one for the Saguenay River, the other for the Péribonka River, at Saguenay-Lac-Saint-Jean.


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