Fortescue finance head faults tax complexity
Speaking at a Senate inquiry into the mining tax, Fortescue's chief financial officer, Stephen Pearce, said it had taken the company several years to work out what its own shelter from the tax would be under the "incredibly" complicated system.
His comments were in response to last week's admission from Treasury secretary Martin Parkinson that his inability to see the size of the deductions being claimed by big miners was the reason for Treasury's wildly inaccurate forecasts over the amount of revenue the tax would deliver.
"I'm not surprised they couldn't see it . . . it has been very hard for us to see it," Mr Pearce said.
Treasury forecast the mining tax would deliver $2 billion to the government by June 30, 2013, yet the tax had only delivered $126 million by December 31.
The shortfall appears to be due to lower commodity prices and multibillion-dollar deductions the miners are claiming for money spent building the mines before the tax was implemented.
The right to claim a "deferred tax asset" was included to ensure the tax was not acting retrospectively on companies, but the measure looks set to undermine revenue flows and the credibility of the tax.
Mr Pearce said Fortescue had an "unrecognised tax benefit" of about $3.5 billion that would help to ensure the company did not pay any mining tax in the "forseeable future".
But Fortescue - one of the loudest critics of the tax - has not emerged unscathed from the implementation of the tax.
Mr Pearce said the company had spent between $3 million and $5 million on preparations to comply with the tax, and would have to continue spending hundreds of thousands a year to merely comply with it.
"Companies are not opposed to change, we are opposed to complexity and compliance costs," he said.
Frequently Asked Questions about this Article…
Fortescue CFO Stephen Pearce told a Senate inquiry the mining tax system is "incredibly" complicated. He said it took Fortescue several years to work out how its own tax shelter would operate under the rules, and that companies object to complexity and ongoing compliance costs.
Treasury secretary Martin Parkinson admitted Treasury couldn't see the size of the deductions big miners were claiming. The article says this lack of visibility, together with lower commodity prices and large pre‑implementation deductions, helped cause forecasts — such as a $2 billion projection — to be wildly inaccurate.
Treasury forecast the mining tax would deliver $2 billion to the government by June 30, 2013, but the tax had only delivered $126 million by December 31, creating a substantial shortfall relative to the original forecast.
The article explains the right to claim a "deferred tax asset" was included so the tax wouldn't act retrospectively on companies. However, allowing those claims appears to have enabled multibillion‑dollar deductions for mining companies and is likely to undermine revenue flows and the perceived credibility of the tax.
Stephen Pearce said Fortescue had an "unrecognised tax benefit" of about $3.5 billion, which would help ensure the company did not pay any mining tax in the "foreseeable future," according to the article.
Fortescue spent between $3 million and $5 million preparing to comply with the mining tax. Pearce said the company will have to keep spending hundreds of thousands of dollars a year just to remain compliant.
The article states that lower commodity prices were one of the reasons the mining tax underperformed, along with large deductions miners claimed for pre‑tax construction spending.
Investors should note that complex tax rules, large deductible claims (like deferred tax assets) and commodity price swings can materially affect government revenue and mining company tax liabilities. The article highlights that even big companies and Treasury can struggle to predict outcomes under a complicated tax, and that compliance costs can be significant for miners.
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