An audit has now revealed BHP may have used the offshore company to artificially understate the price of iron ore sold to customers in Japan and China, dating back to 2004.
A royalty is determined by calculating a fixed percentage of the iron ore sale price, and it is paid directly to the WA government as a tax for mining on state land.
Negotiations over the dispute have been under way for just over two years, and it’s understood parties will again negotiations following a stand-still agreement over Christmas, which prevents both the government and BHP from going to arbitration before March 31.
It’s understood the amount the government is attempting to recover is between $200 and $300 million.
In a statement a spokesperson for the state government confirmed an investigation was under way.
“Following a recent audit the state government identified an underpayment of royalties under various state agreements over a number of years,” the statement said.
“The state government is negotiating with BHP to resolve the matter in the best interests of the state.”
BHP has disputed the characterisation of the audit, and said the arrangement between itself and the state government had been ongoing for some time.
“The mines department has recently queried a long-standing and historically accepted deduction of costs related to the sale of iron ore,” a spokesperson said.
“The long-standing deduction has been consistently audited and accepted by the mines department.
“It’s concerning that previously audited and accepted payments to the government are now being revisited and BHP is now working with the mines department to resolve the matter.”
Late last year, BHP struck a deal with the Australian Tax Office over a $529 million settlement regarding its Singapore marketing hub.
The ATO had initially been seeking $1 billion, but the amount was lowered and BHP vowed to change the ownership structure of the controversial hub.
Following the settlement, the ATO’s deputy commissioner Jeremy Hirschhorn said the case set a precedent for companies with similar structures.
“This is a landmark and precedential development in the execution of our marketing hubs strategy, and sends a strong signal to other industry participants,” he said in a statement.
“Given the importance of mining and natural resources to the Australian economy, it is critical that exporters of Australian commodities, whether iron ore, coal, gas or other commodities, pay the correct tax in Australia on their profits.
“The ATO has had a significant focus on marketing hub arrangements to ensure profits generated in Australia, are taxed in Australia.”
Nationals WA leader Mia Davies said it was concerning the negotiations were being conducted in secret.
“What was fair in the 1960s is not, I don’t think or was ever anticipated, to be played out in the way these companies are structured now,” she said.
“[This trading hub] is exactly one of the things we were raising concerns about in terms of why there needed to be a review of these overseas state agreements.
“So this was one of the issues we were raising back in the election, only to have a majority of I think our opposition and the company saying ‘nothing to see here’.”
The Nationals ran their 2017 election campaign with a strong emphasis on a proposed mining tax, with then-leader Brendon Grylls insisting mining companies did not return their fair share to the state when mining on their land.
“I think that the thing that concerns me now is that the Premier is negotiating this – in secret it turns out – he hasn’t had the stomach to say ‘yes we could go through a review of these legacy state agreements’ – despite us continuing to put that forward.
“So does the Premier have the stomach to see these negotiations through on behalf of all Western Australians? That’s the question that we’ve got.”
Premier Mark McGowan is currently overseas.
Hannah Barry covers breaking news with a focus on social justice and animal welfare for WAtoday.