Page 14 - BHP Economic Contribution Report 2020

Approach to transparency and tax continued

Tax policy Low-tax jurisdictions
Tax systems should balance the need for appropriate returns to We locate our business activities where value is created and
governments with incentivising investment (which in turn benefits do not engage in aggressive tax planning.
the community). In classifying which of our subsidiary companies are located
in low-tax jurisdictions, we have applied the EU list of
non-cooperative jurisdictions for tax purposes, which the
In order to attract investment, tax systems should EU first issued in December 2017. Countries were assessed
be internationally competitive and stable. against agreed criteria for good governance, consistent
with the standards of the EU member states. These criteria
Key factors influencing the international competitiveness relate to tax transparency, fair taxation, implementation
of a country’s tax regime are the corporate tax rate and the of OECD base erosion and profit shifting measures and entity
mix of taxes imposed. After returning excess cash to our substance requirements. The EU has published a list of
shareholders in the form of dividends or share buy-backs and ‘non-cooperative’ jurisdictions and a ‘watch list’ of jurisdictions
ensuring that our balance sheet is strong, we invest back into that have committed to address deficiencies in their tax
our business. When we assess which projects we will invest our governance. The EU reviews the lists at least yearly.
capital in, tax competitiveness is an important consideration. We have six subsidiary companies in countries on the EU’s
We have global competition for limited capital across our ‘non-cooperative’ list. Details of each of these subsidiaries,
many investment options around the world: when taxes are including FY2020 profits/(losses), are included in the table
lower in one country compared to others, all other things on the following page. One entity, BHP (Trinidad-3A) Limited,
being equal, we will invest in that country. is incorporated in Trinidad and Tobago, and holds an
Consequently, given the global reduction in corporate tax undeveloped offshore petroleum block in Trinidad with
rates across OECD countries, it may be challenging for declared oil and gas reserves. The remaining subsidiaries
countries that retain comparatively high corporate tax rates were acquired for a variety of reasons, such as being part
(such as Australia) to remain internationally competitive of a historical acquisition. Close to 100 per cent of the
in attracting capital. income of two of these remaining companies is taxed
in another jurisdiction (Peru or the United States).
In addition, for a business such as ours, which invests over
generations, we want to know the returns we will realise We have one subsidiary company in a country on the
in 10, 20 or 30 years’ time will be commensurate with the EU’s ‘watch list’ other than Australia. The entity, BHP
risks we take in investing our shareholders’ money now. (Trinidad) Holdings Ltd, is incorporated in Saint Lucia
as a holding company. In addition, all of the subsidiary
Our assessment of the stability of tax regimes is a critical companies of BHP are subject to the controlled foreign
factor in assessing the risks associated with particular projects. company tax rules of either Australia or the United Kingdom.
Accordingly, we continue to support the work being undertaken
by the OECD to explore a global solution to address the tax Australia was added to the EU’s ‘watch list’ in 2019 due to its
challenges of the digitalisation of the economy. Consistent Offshore Banking Unit (OBU) regime. We have a significant
with our tax principles, we advocate that the taxing rights of number of entities incorporated in Australia, all of which are
countries should be commensurate with where the economic subject to tax at the normal corporate tax rate of 30 per cent.
activity occurs. For BHP and the extractive industry, the right to None of these entities benefit from Australia’s OBU regime.
extract commodities is inherently and substantially connected Given the number of our Australian entities and the Group’s
to the country in which the commodities are located. We will Australian adjusted effective tax rate in FY2020 was 31.7 per
continue to contribute to the development of a solution that cent, we have not disclosed our Australian subsidiaries in
provides certainty and transparency on the taxing rights of this section.
profits associated with the extraction, sales and marketing of We disclose all of our subsidiary companies, including our
commodities, and one that provides for a globally competitive Australian companies, in our Financial Statements within
tax system that supports economic growth and long-term our Annual Report.
sustainable tax contributions. We engage in the reform process
of international tax rules and local tax rules in the jurisdictions
in which we operate. We primarily do this by engaging on
taxation policy and reform matters through a number of global
industry and local associations, including the Business Council
of Australia, Minerals Council of Australia, Australian Petroleum
Production and Exploration Association, American Petroleum
Institute, Consejo Minero, American Chamber of Commerce
and the International Council on Mining and Metals.

12 BHP Economic Contribution Report 2020