| Fri 11 Jun 2010, 7:14 | | BIL - BHP Billiton Plc - Letter to BHP Billiton Shareholders |
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BIL
BIBLT
BIL - BHP Billiton Plc - Letter to BHP Billiton Shareholders
BHP Billiton Plc
Share code: BIL
ISIN: GB0000566504
Office of the Chairman
11 June 2010
Dear Shareholder
When I wrote to you a month ago I promised to keep you up to date with the
Australian Government`s proposed super tax on the resources industry.
I am writing to you again because I believe it is important that shareholders
are fully informed about events which directly impact our Company. Of course I
feel very strongly about protecting the interests of our shareholders and the
resources industry, but I feel just as passionately about the future of
Australia.
From your letters and emails I know that many of you share my concerns.
One of the key questions you asked is why BHP Billiton and the resources
industry do not engage in more consultation with the Government to find a
solution in Australia`s best interests. This is a fair - and important -
question and we are very disappointed that consultation has not been possible.
For reasons we do not understand the Government chose not to undertake
consultation on the nature and design of the proposed super tax prior to its
announcement.
We always welcome the opportunity to consult but unfortunately (and despite our
efforts) there has been no acknowledgement by the Government of the major flaws
of the proposed tax and the significant impact on the industry. Attached to this
letter is a summary of the debate so far. It shows that:
* Australian Governments have traditionally engaged with industry on major
taxation reform prior to it being announced.
* The Government has not accurately represented the level of taxes we pay on our
Australian operations and we have sought to correct the record.
* Substantive redesign of this proposed tax is necessary and, if this can`t
address its fundamental failings, it should be abandoned.
* Applying the Petroleum Resource Rent Tax (PRRT) model to mineral resources
does not address most of the fundamental failings of the proposed super tax. As
I write, there is speculation that the PRRT is a solution. It isn`t.
BHP Billiton has said that we are not against tax reform but believes the four
principles of sound tax reform are not present in the proposed super tax. We
believe any new tax on the minerals resources industry should:
1. Not fundamentally change the rules of the game on existing projects, both as
a matter of fairness, and so as to protect Australia`s reputation as a stable
place for investment.
2. Make sure the overall tax is competitive with other mineral resources
countries, or Australia will lose investment to countries with more attractive
tax rates.
3. Vary in rate by the kind of mineral resources mined, because the investment
and financial characteristics of individual minerals are different.
4. Be applied on the value of minerals alone - and not unintentionally penalise
investments in infrastructure, processing or other support activities.
Keeping shareholders informed
By the time you receive this letter we will have held some information sessions.
After our upcoming financial results in August we expect to hold further
sessions throughout the rest of the year as part of our retail shareholder
program. You will find more information including updates on our website at
www.bhpbilliton.com
I will keep you up to date on this critical issue with further letters and on
our website.
Yours sincerely
Jac Nasser AO
Chairman
The Australian Government needs to understand the real world impact of the
proposed super tax or it will hurt the Australian minerals industry and hurt
Australia`s future.
Australian Governments have traditionally engaged with industry on major
taxation reform - the same needs to happen now
Before the Hawke Labor Government committed itself to the Petroleum Resource
Rent Tax, three public papers were released and open for discussion for six
months.
When then Treasurer Paul Keating and then Minister for Energy and Resources
Peter Walsh announced their intention in June 1984 to introduce a Resource Rent
Tax (RRT) on undeveloped offshore petroleum projects, they said in a joint
statement:
`In its consideration of possible RRT arrangements for the petroleum sector, the
Government released three papers for public discussion.`
`Comments were invited and received on these papers and consultations have been
held with the industry and the States. The Government has given very careful
consideration to the views of the industry and the States and, in doing so, has
modified significantly its initial thinking on a number of aspects of the RRT.`
The tax was enacted over three years after this announcement. This process of
genuine consultation allowed Government to make the significant changes
necessary for the tax to be workable and achieve its tax reform objectives.
The Government has unfortunately not consulted on the design or impact of the
super tax
In contrast, the proposed super tax was developed by Commonwealth Treasury and
accepted by the Government without consultation. Therefore the Government missed
the opportunity to have Treasury`s theory tested by practical experience and
industry knowledge.
This view is supported by many Australians, including Sir Rod Eddington, the
Government-appointed, inaugural chair of Infrastructure Australia, who earlier
this month called upon the Government to engage in proper consultation with the
resources industry.
Since the Government introduced the proposal on 2 May, meetings with Government
representatives have been about how the tax would be brought in, with no
acknowledgement of the major design features (and flaws) of the tax such as the
40 per cent rate and application to existing projects, or on the impacts of the
tax on the resources industry and investment in Australia.
Government has misrepresented the tax we pay on our Australian operations
We are also disappointed that in the public debate the Government has
misrepresented the level of taxes we pay on our Australian operations.
* On 3 May, the Government told ABC Radio that BHP Billiton and Rio Tinto were
40 per cent and 70 per cent foreign owned respectively and that `their massively
increased profits...built on Australian resources are mostly, in fact, going
overseas`. This is not true, with BHP Billiton having around 500,000 Australian
shareholders.
* For the next three weeks Government Ministers continued to repeat these
comments, adding that we paid 13 to 17 per cent tax on our Australian profits.
Again, this is not true.
* Finally, late last month, after further attacks on our integrity we were
forced to issue a statement saying:
`At the time the Australian Government announced its proposed new super tax, BHP
Billiton clearly stated that in the 2009 financial year it paid total taxes to
Australian governments of A$6.3 billion, resulting in an effective tax rate of
around 43 per cent.
It concerns BHP Billiton that inappropriate conclusions appear to have been
drawn from a study by two academics from a United States university. A more
accurate and meaningful method is to use the actual tax payments and returns
submitted by companies in Australia.
Total taxes paid by BHP Billiton`s Australian operations in relation to the
financial years 2004 to 2009 inclusive exceeds A$24 billion.
The 2009 earnings of BHP Billiton`s Australian operations were almost fully
reinvested back in Australia in the form of taxes, royalties, capital applied to
new and existing projects and dividends to shareholders.`
Substantive redesign of this proposed tax is essential
It is not only Australia`s large minerals companies expressing concern. Small
and medium sized mining companies have publicly expressed their concern about
the tax. Simon Bennison CEO of Association of Mining and Exploration Companies
said:
`The Federal Government`s economic modelling of the Resource Super Profits Tax
is theoretically and fundamentally flawed, as it takes no account of decision
making in the real world.`
David Murray, the Chairman of The Future Fund, and former Commonwealth Bank
managing director, said this month that:
`...if we can`t achieve a design that does not penalise the existing projects -
that`s a sovereign risk issue - and a design that does not discriminate between
recurrent spending and long-term intergenerational wealth creation; if those
things can`t be done, the tax should be abandoned.`
There are now several expert reports that demonstrate the tax will cut
investment in the Australian minerals industry and negatively affect Australia`s
economic future.
In early June, Access Economics economist, Chris Richardson, said the super tax
will slow investment in Australia, and the positive impacts found by Treasury
modelling would take 50 to 100 years to achieve. A KPMG report prepared for the
Minerals Council of Australia shows that the super tax will likely result in
deferrals or cancellations of Australian minerals projects in the short to
medium term.
Applying the Petroleum Resource Rent Tax (PRRT) model to minerals does not
address the fundamental failings of the proposed super tax
Many commentators have realised the inherent and fundamental flaws in the
proposed super tax. Some have suggested the PRRT would provide a more suitable
model.
But the petroleum industry and the minerals industry are very different, and
applying the PRRT model to minerals will still result in deferrals and
cancellations of Australian mining projects.
Around the world minerals are taxed differently to petroleum
A key principle is to recognise that the minerals industry is different to the
petroleum industry. While the PRRT is internationally competitive for petroleum
it is not competitive for the minerals industry. KPMG states, in its report for
the Minerals Council of Australia, that:
`Internationally, the tax treatment of oil and gas typically differs from the
tax treatment of mineral resources. International practice is that petroleum is
almost invariably taxed at higher rates than mineral resources.`
The 40 per cent super tax rate, in addition to company tax, will make the
Australian mineral resources industry the highest taxed in the world and
uncompetitive with other resource-rich nations. An uncompetitive tax rate is a
fundamental problem. Also, when the PRRT was introduced, it only applied to new
projects - not existing projects. By contrast, the super tax will apply to
existing projects, fundamentally changing the rules when billions of dollars
have already been invested.
Tax reform needs to be principled
Simply adapting the super tax to mirror the PRRT does not address the four
principles upon which sound tax reform should be based to ensure strong future
investment in mining for the benefit of Australia.
1. Any additional tax must only apply to new investments. Changing the rules of
the game after the investment has been made carries the risk that Australia will
be seen as a less attractive place to invest than other countries.
2. The overall tax rate should not make the Australian mineral resources
industry less internationally competitive. An additional 40 per cent resource
tax is just too high. It would make Australia the highest taxing country of
mineral resources in the world.
3. The tax rate should acknowledge that different minerals generate different
rates of profit and vary accordingly.
4. Any new tax should apply only to the actual minerals and not to
infrastructure, downstream processing, manufacturing or transport.
Ten reasons why BHP Billiton is concerned about the Australian Government`s
proposed super tax
1. The proposed tax will put Australia`s future prosperity at risk.
2. Australia`s mineral resources industry would become globally uncompetitive.
3. Other resource-rich countries have previously got this wrong and it took them
many years to recover.
4. There was no industry consultation.
5. Consequently the proposed super tax is flawed in design. It will not operate
as intended in the real world.
6. The tax will apply to existing operations - materially changing the rules
halfway through the game after billions of dollars have already been invested.
7. This means many investors will think twice before making another investment
in Australia - this is sovereign risk.
8. Less future investment means fewer jobs being created and fewer opportunities
for future generations of Australians.
9. It puts at risk an industry that is the backbone of the Australian economy.
10. The negative impact of this added tax will unfavourably affect all
Australians.
BHP Billiton Limited BHP Billiton Plc
ABN 49 004 028 077 Registration number 3196209
Registered in Australia Registered in England and Wales
Registered Office: 180 Lonsdale Registered Office: Neathouse Place
Street Melbourne Victoria 3000 London SW1V 1BH United Kingdom
The BHP Billiton Group is headquartered in Australia
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