Transparency the key to building trust

Transcription

1 Transparency the key to building trust Sam Walsh, chief executive Minerals Council of Australia Tax Conference, Melbourne 26 March 2015 ** Check against delivery ** Good afternoon everyone. Let me start by paying my respects to the Traditional Owners of the land on which we meet - the Wurundjeri people of the Kulin Nation. It s great to be back in Australia. I had the immense pleasure earlier this week of announcing that Rio Tinto will be relinquishing development rights over a large part of the North Kimberley in Western Australia. I am hopeful this amazing part of the world will be declared a national park. I m equally pleased to be here in Melbourne where I grew up to discuss a subject that is among the most important issues facing Australia: tax reform and Australia s investment competitiveness. Today I would like to cover a number of issues, including: A few myths that are still around about mining s tax contribution; The challenges facing Australia s competiveness, and; How transparency can help build trust between governments and communities and not just in Australia, but around the world. So can I begin on tax, with a small advertisement? Rio Tinto is a proud taxpayer. Rio Tinto s Taxes paid report Last week we released our fifth annual global Taxes paid report, which lists all our tax payments over US$1 million around the world. As many of you may have seen, our tax and royalty contribution globally, but predominantly here in Australia, was very significant. In 2014 we paid US$7.1 billion in taxes and royalties globally and of this about 80 per cent flowed to Australia. Since we published our first Taxes paid report in 2010 we have contributed almost A$32 billion in taxes and royalties in Australia and a further A$5 billion on behalf of our employees. These are large numbers that come on top of a significant economic and community contribution. Taxes pay for a modern society We think it s right that we pay our fair share, as the services funded by such taxes are the cornerstone of our modern society. Page 1 of 7

2 For example, I mentioned we paid about A$32 billion in the past five years that is the equivalent of 32 Royal Children s Hospitals here in Melbourne. So our activities, and our taxes, do create national wealth and community value. As our Sustainable development report issued this month shows we were involved in 2,200 socioeconomic programmes in They covered a wide range of activities from health, to education, housing, and agricultural food programmes. These are important contributions to the common good - and the common wealth. I am not raising these numbers in the hope of a ticker tape parade on Collins Street but because it is important for our industry to explain its public contributions. Over recent years, a false narrative has emerged that the bulk of the large corporations operating in Australia are aggressive tax avoiders with no real commitment to the social good. While I am not here to defend every business operating in Australia, it is worth remembering that when it comes to taxation, not all companies are created equally. Multinationals Globally our effective tax and royalty rate is about 43 per cent, so as you can see, we are not shirking our obligation as a solid tax contributor. Rest assured, the tax office is getting its fair share from Rio Tinto. I often see the term "multinational" used pejoratively in the debate swirling around the tax contribution of global businesses with significant operations and complex accounts. Sadly, the growing level of community disquiet about corporate taxation in Australia is sometimes fed by a level of wilful misinformation. There is a genuine debate to be had about multinational profit shifting and aggressive tax avoidance in certain areas. Such activities erode public confidence in the tax system and undermine those of us seeking to play by the rules. I can assure you we are not in the business of aggressively minimising our tax. There is no question that more can be done to stop tax avoidance and minimisation through the OECD s current Base Erosion and Profit Shifting (BEPS) agenda but to be effective this must be done on a multilateral basis. A variety of unilateral approaches will lead to an increase in compliance costs and make doing business harder at a time when more investment and jobs are needed to stimulate the world s economies. Australia already has strong tax integrity provisions it should look to help other tax authorities to achieve the same level of integrity to ensure greater global consistency. Page 2 of 7

3 Voluntary compliance Working together is the only way. This philosophy has driven our determination to work closely with the Australian Tax Office (ATO) to ensure it is comfortable with the way we run our business. I am pleased to report that we have agreed to a two year extension to our annual compliance arrangement with the ATO. Under this voluntary agreement, we disclose on a real time basis all major transactions, including offshore related-party transactions. It helps facilitate cooperation and creates an environment in which we can resolve issues in a constructive manner. Contrary to some media commentary, I can assure you that the ATO is as assertive and as diligent as ever with increased interaction and reviews which is as it should be. We believe we are the only mining company in Australia to enter into such a voluntary agreement with the ATO on income tax matters. It is another example of our determination to be as open and transparent as we can be. Transparency Transparency is the key to informed debate. It creates a conversation informed by facts - rather than prejudice, dogma and myths. It is still remarkably common in Australia to find people who believe our industry is the beneficiary of tax concessions so generous that we barely contribute any tax at all. Similar urban myths exist in relation to the Fuel Tax Credit Scheme, or the Diesel Fuel Rebate as it was once known. Our industry s use of diesel in our trucks, trains, remote power generation is no different to a farmer using it in a harvester to sow a crop, or a tourism operator using it in a charter boat. It is a basic business input. The more these issues are understood the better Australia can judge them on their merits. In 2010 after the debate on the Resources Super Profits Tax, we made the decision that transparency was the only way forward for an informed debate. We started work on our annual Taxes paid report. It has been a great myth-buster. As the numbers show, year by year, dollar by dollar, people can judge the size and fairness of our tax contribution. Our commitment to transparency is also why we were an early backer of the Extractive Industries Transparency Initiative (EITI). Page 3 of 7

4 The EITI Standard is a good two-way street. It requires companies to report how much tax they pay and it also requires governments to disclose how much they receive. There are currently 48 countries implementing the EITI. More than US$1.3 trillion has so far been disclosed. When the sun shines on who has paid what, matched to how much has been received, there is less of a chance of corruption and misuse. Implementing the EITI Standard signals a commitment to the transparent management of a country s natural resources thus enhancing citizens trust. No one wants to pay their taxes if they don t believe, and can t see, that others are paying their share too. In an information vacuum, misinformation reigns and the solution is very simple more transparency. I think corporate Australia would be well served by closely examining and adopting some of the approaches we have taken on tax disclosure and transparency. Australia s tax challenge The debate about tax, of course, should not just be about revenue raised it should also be about ensuring the tax system is as fair and as competitive as possible. Australia s A$400 billion tax system is no longer as internationally competitive as it once was - or could be. With a small population, Australia has always depended heavily on overseas investment and it faces steep competition to attract it. Like a company competing for capital, such a system should be better calibrated towards attracting fresh investment for economic growth and jobs. The World Economic Forum s ranking of 144 countries places Australia s tax system in about 100 th place. This is due in part to Australia s corporate tax rate which has been stuck at around 30 per cent for the past decade. Over that same period, a host of countries have cut their rates: New Zealand by five percentage points; South Africa by seven percentage points; the UK by nine percentage points, and Canada by almost 10 percentage points. And if Australia looks to its region - the average tax rate in Asia is 21 per cent. I acknowledge that Australia s current fiscal difficulties make a cut in the corporate tax rate somewhat problematic in the short term, but Australia should not let its tax system stay frozen in the past. Australia cannot wish its way to prosperity, it must compete on the playing field being shaped by others around it. The corporate tax rate sends a signal and it makes a material difference to investors. Page 4 of 7

5 It is definitely not the only ingredient in making the country attractive to investment, but it is a key factor, a powerful lever. If Australia wants to attract capital and promote new industries the corporate tax rate should not be overlooked, and nor should Australia s tax complexity. The burden of compliance can act as a handbrake on entrepreneurial spirit not just for big companies but also for small businesses seeking to grow. When only ten of the 125 taxes in Australia generate 90 per cent of the revenue it begs the question: what are the other 115 taxes and levies doing to competitiveness? Such taxes sap entrepreneurialism at a time when it is needed most. Tax reform The Commonwealth Government has announced a White Paper to examine Australia s tax regime. This is a great opportunity to fashion a tax system fit for purpose, fit for the future. It provides a valuable opportunity to get the balance right. The balance between: taxes on jobs and investment, and taxes on consumption and wealth. The balance between: taxes which clog the system with compliance and those which support entrepreneurialism, venture capital and jobs. Such reform cannot succeed without broad community support. And that support can only be built on a foundation of trust. The time to start fostering that trust is right now if Australia wants to get the tax reform cart moving again. History shows us such reforms are fiendishly difficult. It took almost two decades for a goods and services tax (GST) to move from a Treasury suggestion to national policy in Along the way it was attacked, scrapped, revived and dumped again, before it was finally legislated. Despite its tortuous journey it is now recognised as one of the most important society-sustaining tax reforms. Australia is once again faced with equally difficult choices and hard reforms. There are examples over the decades of bi-partisan support for such reforms which, whilst painful at the time, were the right ones to make. The dismantling of tariff barriers and the floating of the dollar are two such examples that modernised the economy. Page 5 of 7

6 Unless public trust can be built around the need for change, the processes of implementation - be it for tax reform or any public policy - will be so much more difficult. Without trust there can be no reform. And in my view, without transparency there can be no trust. Conclusion So in conclusion, I hope I have gone some way towards dispelling any myths about Rio Tinto s contribution to taxes. I am keen we contribute to an informed public debate. I also hope many others in our industry, and in other sectors, will follow our lead on transparency. With the tax White Paper, Australia has an opportunity to develop a tax system built for the future, and to attract investment in an increasingly competitive world. Australia has faced reform challenges in the past and built a stronger economy. Support for future reforms will be achieved when people not only believe in the merit of change, but have confidence and can see that everyone is fairly playing their part. And if we want to build trust for such change - be it at a community, business, national or global level - transparency will be the key. Thank you. Page 6 of 7

7 Contacts on Twitter Media Relations, EMEA/Americas Illtud Harri T M David Outhwaite T M David Luff T M Investor Relations, EMEA/Americas John Smelt T M David Ovington T M Media Relations, Australia/Asia Ben Mitchell T M Bruce Tobin T M Matthew Klar T M Investor Relations, Australia/Asia Rachel Storrs T M Galina Rogova T M Grant Donald T M Rio Tinto plc 2 Eastbourne Terrace London W2 6LG United Kingdom T Registered in England No Rio Tinto Limited 120 Collins Street Melbourne 3000 Australia T Registered in Australia ABN Page 7 of 7