There was one simple goal: to find out how much income tax was paid by Glencore, Australia’s biggest coal miner. Our quest had more spills than a Blues Brothers movie. We were met with the threat of a lawsuit, newspaper editors caving in with grovelling apologies, weeks of company searches costing hundreds of dollars, a hostile PR offensive run in rival media and the mining lobby and were still none the wiser. This story demonstrates why Tax Office transparency is absolutely critical to the public interest.
Time: 11.30 am, July 21, 2014.
Place: Fairfax Media boardroom.
On one side of the board table sat Peter Freyberg, chief executive of Australia’s biggest coal miner Glencore, his finance duo Earl Melamed and Nick Talintyne, and PR man Francis de Rosa. Across the table, a motley crew: this reporter, SMH managing editor Peter Gearin and forensic accountant Jeff Knapp.
It was a hostile affair. The Glencore executives had taken offence at our coverage of their tax affairs in the Sydney Morning Herald and The Age and were demanding an apology and a story be pulled.
There was a light moment however when Peter Freyberg leant across the table and produced a note on Ernst & Young letterhead. The Big Four accounting firm had been Glencore’s auditor in Australia.
The note said Glencore had paid $400 million in tax and it was presented by Freyberg as evidence of the group’s good taxpaying. Jeff Knapp and I could not help but chortle. We couldn’t find this $400 million in Glencore’s statutory financial statements and the executives would not show us where to find it, instead proffering the EY note. As one of the Big Four architects of global tax avoidance, EY and its letterhead, unsigned, merely fuelled our suspicions the coal giant had plenty to hide.
In any case, we were not allowed to keep the bit of paper, only to gaze at it briefly and apparently take it for granted.
The rest of the meeting constituted a stand-off; two sides slanging-off at each other and the odd snide exchange. Later, Fairfax received a legal threat for “injurious falsehood”, management caved in, pulled a story and apologised for what we argued warranted a minor correction at best. Above Peter Gearin, The Age and SMH editors had neither the inclination nor the intellect to fight.
It was just too hard.
If you search Glencore’s myriad entities in the database of the Australian Securities & Investments Commission (ASIC), you will find a circuitous maze, scores of companies once topped by something called GHP 104 160 689 Pty Ltd whose immediate parent was in the Atlantic tax haven of Bermuda. It has since had a name change. Perennial restructuring and asset juggling clouds the picture.
Near the top of the group’s labyrinthine suite of companies, when we searched it in 2014, was a consolidated set of financial statements for Glencore Operations Australia Pty Ltd. This was not the head of the snake, however. Its parent was Glencore Queensland Ltd, whose parent in turn was Glencore Investment Holdings Australia Ltd. Then there was Glencore Investment Pty Ltd, then the mysterious GHP 104 160 689 Pty Ltd.
The process of finding out how much Australia’s biggest coal miner paid in income tax had begun six weeks earlier. I had rung and emailed Glencore on at least a dozen occasions starting in June. In order to encourage them to respond, I also tweeted, “Does Australia’s largest coal producer pay tax?”
They ducked for cover. Three weeks after first asking for a response, having tried to contact both PR Francis de Rosa and CEO Peter Freyberg by telephone and email, we published the first story.
Glencore did not complain about this story. Two weeks later though, upon a request from The Age for a page-one splash on the same issue, an earlier version of this story ran:
The story went off and Glencore went ballistic, responding to other more friendly media that they paid $8 billion “in taxes and royalties” over seven years. I asked for a breakdown. Was this figure gross or net? Did it include payroll tax, GST, diesel fuel excise, royalties and so forth? It was surely not income tax.
No response was forthcoming. Then another figure was bandied about: $3.4 billion tax over three years, presumably to match our three-year “no tax” claim. The mining lobby has two neat tricks when it comes to confusing the media and trumpeting how much tax its members pay. One, it is fond of conflating tax with royalties, often rolling out an “Independent Expert” report from Deloitte Access Economics. Royalties of course are not tax, they are the price the company pays to the state for the commodities they dig out of the ground.
The second trick is claiming journalists don’t know what they are talking about. Indeed, once Glencore had won its fawning apology from the SMH editors, the peak body for the miners, the Minerals Council of Australia, did just that. It issued a press release extolling Glencore’s virtue and bagged yours truly personally for being ignorant.
The $3.4 billion probably also included royalties and other taxes and was therefore “apples and oranges”, that is they were responding to another proposition which had never been put in the first place. Our question related to how much income tax, not royalties or other things, the coal division paid. It was about coal and it was about income tax. But, straight out of the PR playbook of the peak body, Minerals Council of Australia, here were taxes and royalties being conflated.
Their claims were circulated in other media and even in the SMH and The Age. To mollify the Swiss giant, Fairfax editors ran an AAP story which put Glencore’s “we pay billions” claim.
It was after the second story that the PR operative called and said we had overlooked the holding company for the coal assets in Australia.
I asked what the name of the company was. He initially declined to name it but came back later and said it was AZSA Holdings. We searched AZSA. All the time I was working in conjunction with an expert in multinational financing, a former top executive for one of the world’s largest companies who felt strongly about the issue of tax avoidance and with Jeff Knapp the accounting academic whose work had led to the Senate Inquiry in 2015 and subsequent reforms to the tax laws.
The accounts of Glencore Coal Investment Holdings (GCIA) upon which we had relied for the two stories – and which appeared to encompass their entire coal business in Australia – showed Glencore had paid $23 million and $21 million in tax in 2012 and 2011 and received a benefit from the ATO of $29 million in 2013.
This was the basis for our calculations that Glencore, Australia’s biggest coal company, paid no tax for the past three years. All up, it was demonstrable that this entity recorded $15 million in tax paid, according to the cashflow statements, on $13.5 billion in revenue. We had pointed out in the stories that tax is paid on profits, not revenue, and that the deductions appeared to be aggressive to wipe out taxable income.
To put in it perspective, this rate of tax equates to the cost of a round of drinks for a worker on $100,000, or, over three years, dinner at a good restaurant for a family of four.
In fact, one of main points we made in support of the argument Glencore was a belligerent tax avoider, was that they had taken out a $3.4 billion loan with their Swiss parent fixed at an interest rate of up to 9pc. This loan was made, and the hundreds of millions a year in interest paid out to Switzerland, during the biggest coal boom in history. It was a time when Glencore was recording mountainous profits.
It was also a time when they were doing an increasing amount of business with themselves, that is selling coal to Glencore-related parties, and paying high finance charges to other related parties.
Having finally been told by Francis de Rosa that the name of the holding company was AZSA, we searched it and found that AZSA had paid $197 million in tax in the past three years.
This is still a tiny amount on AZSA’s roughly $13 billion to $14 billion income. I say roughly because it is impossible to tell from the accounts what the real picture is. They stopped consolidating them – in contravention of accounting standards and therefore the Corporations Act – in 2013. So the real answer to the question of how much income tax this group paid was impossible to determine with precision by using the statutory materials.
Further AZSA, as was conceded at the boardroom meeting with Glencore executives attended by managing editor Peter Gearin, UNSW accounting expert Jeff Knapp and myself, included overseas businesses. Their finance people admitted at the meeting that it was not possible to tell from these accounts whether this tax had been paid in Canada or Australia.
After the corrections had been run, at my second meeting with two of them – also attended by Peter Gearin – de Rosa and finance director Nick Talintyne tried to get me to admit that the stories were wrong. I refused and said the headline on the second story was wrong but I stood by the fact that Glencore’s coal business had paid almost no tax in Australia for the three year period. I said I stood by the stories.
At one point, I literally held their accounts up before them, pointed out the figures in their cash flow statements, and asked if Glencore stood by its own statutory filings, whereupon they admitted that the $400 million figure represented the whole of Glencore’s operations in Australia, not just coal. Glencore is also big in the grains business.
Again, this is very little income tax. And it should be seen against the backdrop of our advice that there were a slew of irregularities in their various public accounts. Also, around that time, Glencore had increased dramatically the number of transactions with related parties. In other words, it was selling much more coal to its own intermediaries rather than to the end buyer, a practice for which it, Rio and BHP came under scrutiny by the ATO and at the 2016 Senate hearings.
Last year, the group was exposed in the Paradise Papers for shifting $25 billion from Australia to Bermuda via complex derivative instruments called cross-currency interest rate swaps. The ATO investigated. It is not known if the investigations are still afoot.
“The Paradise Papers show that on 12 April 2013 two Bermuda-based arms of Glencore – Glencore Capital and Glencore Finance (Bermuda) – changed $25bn in Australian dollars to US dollars through Glencore Australia Investment Holdings,” said a story in the Guardian.
In Glencore’s defence, it appears the company may have paid a little tax during the years in question. We made a mistake in not fudging to account for this outcome. Due to poor visibility and lack of clarity in the financial statements, and the sheer complexity of this commodities empire, it is hard to tell.
Further to Glencore’s claims, the price of thermal coal had fallen from early 2011 to late 2015, putting pressure on profit margins – although prices remained well above long-term trend and the fruits of the greatest resources boom in history had largely been funnelled offshore.
Moral of the story?
- There are serious deficiencies with multinational financial reports – certainly not just those of Glencore – which often make it impossible for external observers to get a true and accurate picture of a group’s position.
- It is hard for media organisations to stand up to powerful vested interests in the face of legal threats and a PR offensive.
- For a company to consistently record such low taxable income on such massive revenue, and avoid significant action from tax authorities, suggests Glencore must have bloody good lawyers.
- The Tax Office transparency data, which only occurred as a result of public pressure, is wonderful. Along with the enforcement campaign by the ATO, it is helping to bring billions of dollars into the national coffers.
Further to this transparency, we ranked Glencore as #1 tax dodger in our michaelwest.com.au Top 40 charts based purely on this Tax Office data. This was just one of Glencore’s entities however, the largest by total income. Here are all the listings:
GLENCORE INVESTMENT PTY LIMITED. Total income $27,929,635,183, taxable income $108,107,993, taxable income nil.
GLENCORE AUSTRALIA INVESTMENT HOLDINGS PTY LTD. Total income $2,556,726,671, tax and taxable income nil. GLENCORE GRAIN HOLDINGS AUSTRALIA PTY LIMITED. Total income $4,132,120,862, tax and taxable income nil.
GLENCORE INVESTMENT HOLDINGS AUSTRALIA LTD: Total income $7,787,854,928, tax and taxable income zero.
GLENCORE INVESTMENT PTY LIMITED. Total income $18,349,032,015, tax and tax payable nil.
GHP 104 160 689 PTY LTD (same ABN as Glencore Investment Pty Limited). Total income $14,196,441,080, taxable income $2,567,672, tax payable $770,302.
GLENCORE HOLDINGS PTY LIMITED. Total income $1,867,473,725, taxable income $146,784,062, tax payable $44,035,219.
It should be said that Glencore is but one of dozens of multinationals operating in this country which does not pay its fair share of income tax. Like the others, it does its best to hide things and to confuse external observers. It should also be said that thanks to the transparency reforms, any observer can now access Tax Office data which delivers the numbers. See the list above. What we still don’t know is whether that is tax paid in Australia. More disclosure and transparency are needed.