Legal Aspects Of International Marketing Trade And Enterprises – BHP Billiton, Royalty Payable To State Government, Agreements And Treaties

Overview of BHP Billiton

Describe about the Legal Aspects of International Marketing Trade and Enterprises.

1. BHP Billiton is a multinational company which engages in mining and petroleum activities. Headquarter of BHP Billiton is in Melbourne. In 2011 it became the largest mining company in the world. The Strategy of BHP Billiton is to own upstream assets for the long term and with the maintenance of low cost (Australia Business Review, 2014).

The Purpose of this company is to create its shareholder’s value by the discovery, acquisition, development and marketing of natural resources.oil, gases and energy coal. The Company is the largest producer in the world of iron ore, metallurgical coal, copper and uranium and also has interest in the oil, gases and energy coal. The Strategy of company is based on diversification: commodity, geography and market (BHP Billiton, n.d.).

BHP Billiton is a company which is dual listed (DLC). It includes BHP Billiton Limited and BHP Billiton Plc. In 2001 this company was created from the merger of 2 companies that is BHP Limited which is now known as BHP Billiton Limited and Billiton Plc which is now known as BHP Billiton Plc.

The Company operates in Metal & Mining Industry: Australia is one of the largest producers of the world of mineral products. It is the largest sector with almost 700 companies which are involved in exploration of minerals. In this sector world’s largest companies are operating such as BHP Billiton & Rio Tinto. This industry is depending on the equity markets for the capital they required. Since 2009 Investors in Australia support 270 new resource floats. There are various reasons for listing of companies engaged in Metals & Mining are listed on ASX:

for accessing the capital from capital market. In this market there is a wide range of institutional investors and retail investors.

for providing opportunities to SMEs.

it is a developed market in major mining regions in the world (ASX, n.d.).

BHP Billiton provides many opportunities for career development. They seek people who have skills and provide an opportunity to work with their company. Following are the number of employees from 2012 to 2015 in Australia is (Statista, n.d.):

YEAR	NO. OF EMPLOYEES
2012	19305
2013	21977
2014	23048
2015	21428

Globally 80368 employees and contractors are working with BHP Billiton (BHP Billiton, n.d.)

Location of global headquarter of BHP Billiton:

Headquarters of BHP Billiton Limited and global headquarter of BHP Billiton Group are situated in Melbourne, Australia.

Framework related to Royalty payable to State Government

Headquarters of BHP Billiton Plc is situated in London & United Kingdom (BHP Billiton, n.d.).

there is brief tax information of Australia regarding mining activities. When company faces problems related to an economy at the time when mineral prices rise, that time government depends on mining companies for cover the shortfall of tax revenue.

Let start the discussion with the brief knowledge of Royalty; Royalty is the amount payable by the mining company to the state government or territory from which company extracts the minerals.  Rates of Royalty are not same, every state & territory has its different rates. Many states imposed flat rate or rate which is profit related, but most states impose ad valorem Royalty and on an FOB basis (ICLG, 2015). Following are the facts on the tax rates of Australia:

The CIT rate is 30% in Australia.

There are two types of mineral taxes applicable in Australia:

State royalty- state royalty is paid at state level. It is paid on the basis of the volume of minerals extracted. Rates applicable on different minerals are:

Copper: 2.7%-3.5%

Gold: 0%-2.5%

Iron Ore: 6.5%-7.5%

Coal: 7.0%-10%

The Amount paid for royalty is deducted in the calculation of CIT.

Minerals resource rent tax (MRRT): MRRT is paid on the federal level. It is paid on the basis of mining profit. It is apply to coal and iron ore (bulk commodity) in Australia from 1 July 2012. Rates applicable on different minerals are:

Copper: N/A

Gold: N/A

Iron Ore: 22.5%

Coal: 22.5%

The Amount paid for MRRT is deducted in calculation of the CIT.

Social contribution is necessary in Australia for mining companies (PWC, 2012).

Annual report of 2015 of BHP Billiton shows the amount paid by the company to the government. In 2015 company paid globally US$7.3 billion by way of taxes, royalties and other payments to governments. Company’s global effective tax rate was 31.8% which is higher than the income tax rate of OECD. Company’s total contribution to the economy in 2015 was US$35.7 billion (BHP Billiton, n.d.). As per the annual report of 2015 company paid US$5245.0 to the Australian Government by way of taxes, royalties and other government payments (BHP Billiton, n.d.).

There are some negative effects also of payment of royalty on the side of company, royalty impact very badly on the profits of companies which result that Australia becomes less attractive for companies engaged in mining activities. Chief executive Brendan Pearson said that Australia levy high tax on mining industry as compared to other countries and as per the analysis of MCA 47.1% profit of mining companies are paid in taxes and royalties in Australia. It also affects the investors of mining companies also because such high tax jurisdiction also affects the funds and profit of investors (Ingram, 2015).  

Agreements and Treaties related to BHP Billiton Products and Services

The Introduction of Mining Tax: presently mineral taxes such as royalty are paid by the company to the State Government & Territory on the basis of the minerals extracted by the company from that state or territory. When minerals cost is high in world still royalty payment had not increased. 40% of profits are paid by the company in 2001 to the state government, but presently share of the profit paid by the company is less than 20%, which increases the need for new tax.

The Mining tax is also known as the Resource Super Profit Tax i.e. RSPT (Mining tax facts, n.d.).

3. Before discussing the agreements, treaties and conventions related to products and services of BHP Billiton, first discuss the meaning and importance of treaties and agreements.

An agreement under international law which is entered between sovereign states and international organizations are known as the treaty. It is also known as the international agreement between international parties, protocol, covenant & exchange of letters. Usually treaties are compared to contracts because as contracts in treaties also parties have obligations and if parties failed in fulfilling their obligations, then parties are liable under international law. Following are the treaties which affect the goods and services of BHP Billiton:

Japan Australia Economic Partnership Agreement (JAEPA):

The Partnership of Japan and Australia is most important for both the countries in respect of economic and strategic interest. Australia is a bigger supplier of Japan for minerals and energy and of food products also. In 2014-15 Australia was Japan’s 2^nd largest trading partner and also Japan was the 2^nd largest importer of Australia. Japan was also 2^nd largest direct foreign investor in Australia.

They strengthened their relationship by entering into an agreement known as Japan Australia Economic Partnership Agreement (JAEPA) which was forced in 2015, January (Australian Government: Department of foreign Affairs and Trade, n.d.).

Provisions and conclusions of this agreement are announced on 7^th April 2014 in Tokyo by Prime Minister Tony Abbott and Shinzo Abe. In Canberra prime ministers of both the countries signed the agreement on 8^th July 2014. JAEPA is very liberalizing agreement conducted by Japan.

Both the countries are natural partners. This agreement provides Japan an opportunity from export natural resources from Australia (Australian Government: Department of foreign Affairs and Trade, n.d.).

JAEPA affects the exporting of our company. Iron ore can be supplied by the company to Japan as per this agreement. This agreement gives economic benefit to BHP Billiton because of increment in trade of goods of high quality.

There is viding growth in the relationship of India and Australia in recent years. In last five years, trade of goods and services is increased annually by 24% in 2008-2009 to US$16 billion. For building more strong relationship both the countries work on FTA in 2008. This agreement covers trade in all goods.

This agreement removes restrictions in foreign investments. It also works on increasing transparency and gives strength to the mechanism of investment protection. This agreement helps both the governments in the growth of their economy. Following are the elements of terms of agreement:

• Benefits arrived by both the governments through FTA.
• To enhance the accusation of goods, services and investments through FTA and        also solve issues related to intellectual property, sanitary and phytosanitary issues.
• For the expansion of trade in goods through liberalization.
• For the expansion of services in various sectors including labor, mutual arrangements, etc..
• Create a favorable environment in both the countries for investment purpose.

In Australia, FTA is a comprehensive agreement but in India FTA covers only goods (Australian Government: Department of Foreign Affairs and Trade, n.d.).

AMEC Convention 2016:     

This convention was held in Crown Perth from 8-9 June. The aim of this convention was to instigate the issues faced by companies and organizations engaged in mining activities in Australia. This convention was organized by the AMEC (Association of Mining and Exploration Companies). AMEC is the body in Australia for the mining industry.  AMEC is the nonprofit organization and works for the benefit of the mining industry. AMEC bring together presenters of this industry from all over the world and speakers from all the levels of government (AMEC, 2016).

Australia and the Antarctic Treaty System:

A set of the agreement governed the activities in Antarctica and near seas between many nations and that set of the agreement known as Antarctic Treaty system. It consists four agreements:

1959 Antarctic Treaty

1972 Convention for the Conservation of Antarctic Seals

1980 Convention on the Conservation of Antarctic Marine Living Resources

1991 Protocol on Environmental Protection to the Antarctic Treaty

These agreements are legally binding on three aspects that are political, geographical & environmental. These obligations are applicable to all the companies which signed this agreement. Australia is also the party of this agreement. This treaty has following principles:

Freedom of scientific investigation and the exchange of scientific findings

Non-militarisation of Antarctica and the southern ocean (Australian Government: Department of Foreign Affairs and Trade, n.d.).

These treaties ahs direct effect on the mining and metal industry because these treaties cover the goods and services which are provided by the BHP Billiton.

References:

AMEC, (2016). AMEC Convention 2016. Retrieved on 30^th August from: https://www.amec.org.au/events/amec-convention-2016.

ASX. Metals & Mining Sector Profile. Retrieved on 30^th August from: https://www.asx.com.au/documents/products/asx-metals-and-mining-sector-profile.PDF.

Australia business review, (2014). Australia’s Largest Companies 2014. Retrieved on 30^th August from: https://www.businessreviewaustralia.com/top10/1196/Australia’s-Largest-Companies-2014.

Australian Government: Department of foreign Affairs and Trade. Australian Antarctic Division: Leading Australia’s Antarctic Program. Retrieved on 30^th August from: https://www.antarctica.gov.au/law-and-treaty.

Australian Government: Department of foreign Affairs and Trade. Japan. Retrieved on 30^th August from: https://dfat.gov.au/geo/japan/pages/japan-country-brief.aspx.

Australian Government: Department of foreign Affairs and Trade. Japan Australia Economic Partnership Agreement. Retrieved on 30^th August from: https://dfat.gov.au/trade/agreements/jaepa/Pages/japan-australia-economic-partnership-agreement.aspx.

Australian Government: Department of foreign Affairs and Trade.Australia-India Comprehensive Economic Cooperation Agreement. Retrieved on 30^th August from: https://dfat.gov.au/trade/agreements/aifta/pages/australia-india-joint-free-trade-agreement-fta-feasibility-study.aspx.

BHP Billiton. Economic contribution and payments to governments Report 2015. Retrieved on 30^th August from: https://www.bhpbilliton.com/investors/annualreporting2015/tax-and-transparency.

BHP Billiton. Economic contribution and payments to governments Report 2015. Retrieved on 30^th August from: https://www.bhpbilliton.com/~/media/bhp/documents/investors/annual-reports/2015/bhpbillitoneconomiccontributionandpaymentstogovernments2015.pdf#page=7?utm_source=TTApproach&utm_medium=W&utm_campaign=AR15&la=en.

BHP Billiton. Our Company. Retrieved on 30^th August from: https://www.bhpbilliton.com/aboutus/ourcompany.

BHP Billiton. Our Structure. Retrieved on 30^th August from: https://www.bhpbilliton.com/aboutus/ourcompany/ourstructure.

BHP Billiton. People & Careers. Retrieved on 30^th August from: https://www.bhpbilliton.com/people.

ICLG, (2015). Mining Law 2016. Retrieved on 30^th August from: https://www.iclg.co.uk/practice-areas/mining-law/mining-law-2016/australia#chaptercontent13.

Ingram, T. (2015). WA no longer world’s best place for miners, hammered by royalties and taxes. The Sydney Morning Herland. Retrieved on 30^th August from: https://www.smh.com.au/business/mining-and-resources/wa-no-longer-worlds-best-place-for-miners-hammered-by-royalties-and-taxes-20150303-13tkrz.html.

Mining-Tax. Mining Tax facts. Retrieved on 30^th August from: https://www.mining-tax.com.au/.

PWC, (2012). Corporate income taxes, mining royalties and other mining taxes, A summary of rates and rules in selected countries. Retrieved on 30^th August from: https://www.pwc.com/gx/en/energy-utilities-mining/publications/pdf/pwc-gx-miining-taxes-and-royalties.pdf.

Statista. Number of employees at BHP Billiton from 2012 to 2015, by region. Retrieved on 30^th August from: https://www.statista.com/statistics/274234/number-of-employees-at-bhp-billiton-by-region/.