Page 192 - Annual Report 2020

6 Income tax expense continued
Recognition and measurement
Taxation on the profit/(loss) for the year comprises current and deferred tax. Taxation is recognised in the income statement except to the
extent that it relates to items recognised directly in equity, in which case the tax effect is also recognised in equity.

Current tax Deferred tax Royalty-related taxation
Current tax is the expected tax Deferred tax is provided in full, on temporary differences Royalties and resource rent taxes are treated as taxation
on the taxable income for the arising between the tax bases of assets and liabilities arrangements (impacting income tax expense/(benefit))
year, using tax rates and laws and their carrying amounts in the Financial Statements. when they are imposed under government authority
enacted or substantively Deferred tax assets are recognised to the extent and the amount payable is calculated by reference
enacted at the reporting that it is probable that future taxable profits will be to revenue derived (net of any allowable deductions)
date, and any adjustments available against which the temporary differences after adjustment for temporary differences. Obligations
to tax payable in respect can be utilised. arising from royalty arrangements that do not satisfy
of previous years. Deferred tax is not recognised for temporary these criteria are recognised as current provisions
differences relating to: and included in expenses.
• initial recognition of goodwill;
• initial recognition of assets or liabilities in a
transaction that is not a business combination and
that affects neither accounting nor taxable profit;
• investment in subsidiaries, associates and jointly
controlled entities where the Group is able to control
the timing of the reversal of the temporary difference
and it is probable that they will not reverse in the
foreseeable future.
Deferred tax is measured at the tax rates that are
expected to be applied when the asset is realised or
the liability is settled, based on the laws that have been
enacted or substantively enacted at the reporting date.
Current and deferred tax assets and liabilities are offset
when the Group has a legally enforceable right to offset
and when the tax balances are related to taxes levied
by the same tax authority and the Group intends
to settle on a net basis, or realise the asset and settle
the liability simultaneously.

Uncertain tax and royalty matters
The Group operates across many tax jurisdictions. Application of tax law can be complex and requires judgement to assess risk and estimate
outcomes, particularly in relation to the Group’s cross-border operations and transactions. The evaluation of tax risks considers both amended
assessments received and potential sources of challenge from tax authorities. The status of proceedings for these matters will impact the
ability to determine the potential exposure and in some cases, it may not be possible to determine a range of possible outcomes or a reliable
estimate of the potential exposure.
The Group has unresolved tax and royalty matters for which the timing of resolution and potential economic outflow are uncertain. Tax and
royalty matters with uncertain outcomes arise in the normal course of business and occur due to changes in tax law, changes in interpretation
of tax law, periodic challenges and disagreements with tax authorities and legal proceedings.
Tax and royalty obligations assessed as having probable future economic outflows capable of reliable measurement are provided for as at
30 June 2020. Matters with a possible economic outflow and/or presently incapable of being measured reliably are contingent liabilities and
disclosed in note 33 ‘Contingent liabilities’. Individually significant matters, including those resolved during the financial year, are outlined
below to the extent that disclosure does not prejudice the Group.

Controlled Foreign On 11 March 2020, the Australian High Court ruled that BHP Group Limited and BHP Group Plc are ‘associates’
Companies dispute under the Controlled Foreign Companies rules, and therefore profits earned globally by BHP’s Sales and Marketing
organisation from the sale of commodities acquired from Australian subsidiaries of BHP Group Plc are subject to
‘top-up tax’ in Australia at the corporate tax rate of 30 per cent. As a result of this ruling, BHP paid approximately
US$115 million in additional taxes for the prior years, being FY2006 to FY2019, with US$32 million paid in prior
periods and US$83 million paid in FY2020.
Samarco tax assessments Details of uncertain tax and royalty matters relating to Samarco are disclosed in note 4 ‘Significant events –
Samarco dam failure’.

190 BHP Annual Report 2020