Devika Bhatia

Project title

Corporate Tax Base Erosion and Profit Shifting of Mining Multinationals

Host university

University of Western Australia

The Challenge

Mining firms are often multinational entities with a global network of hundreds, if not thousands, of subsidiaries, branches, head-offices and affiliates across the world. These firms minimize global tax burdens by shifting incomes from resource-owning countries with higher tax rates to tax havens or countries with low tax rate.

When mining incomes are moved from resource-owning countries like Australia to tax havens like Singapore, the benefits of mining are shipped overseas along with the iron ore.

This research focuses on three basic questions –

• What is the magnitude of tax motivated profit shifting of mining multinationals?
• Can the tax policy of resource rich countries like Australia address the challenges of profit shifting?
• Will alternate tax policies discussed at the UN like Formulary Apportionment reduce the magnitude of profit shifting by mining multinationals?

Key Findings

• We construct of a new measure in Base Erosion and Profit Sharing (BEPS) through the profitability gap between estimated and reported profit scaled to firm size allows to better capture tax motivated income shifting as compared to conventional measures.
• Firms located in low-income countries are more sensitive to profits shifting than those located in high-income countries like Australia. This has significant implications on the tax capacity of low-income countries in relation to the mining cycle
• The unavailability of data presents huge challenges in determining the impact of Formulary Apportionment on profit shifting activities.

Benefit to Western Australia

Any tax policy change which has an impact on the Australian mining firms has immense social and economic consequences for Western Australia (WA). Almost 40% of all Australian mining firms are located in WA. Out of the 245,703 people employed directly in mining, 43% are Western Australians. In addition to the direct employment links, the economy of Western Australia is also dependent indirectly on mining due to complex income-investment networks. Currently, mining firms in Australia pay around 43% of revenue to State governments through royalties (17%) and Commonwealth government through company taxes (26%). The well-being of Western Australians is inexorably connected with mining firms and the taxes they pay in Australia.

Link to thesis 

Devika’s thesis can be accessed from the UWA Library via the link below:

10.26182/kmzv-vz93