Fortescue Metals Group (ASX: FMG) has long made its opposition to the Australian Government’s Minerals Resource Rent Tax known, and has finally decided to act on it with the launch of a challenge against the tax in the High Court.
Nev Power, chief executive officer, said Fortescue has received legal advice and is challenging the tax for a number of reasons.
Here are the reasons why:
- It discriminates between the States contrary to section 51(ii) of the Constitution;
- It curtails State sovereignty contrary to the Melbourne Corporation principle;
- It Gives preference to one State over another contrary to section 99 of the Constitution; and
- It restricts a State’s ability to encourage mining contrary to section 91 of the Constitution.
"We believe we have a good case for challenging the MRRT on constitutional grounds and we look forward to the resolution of these important issues by the High Court," Power said.
MRRT backstory
Fortescue, whose chairman Andrew Forrest is a long-time opponent of the MRRT, has previously lashed out at the tax, saying it was poorly designed and would reduce investment and future jobs in the mining industry.
While the original petroleum resource rent tax was negotiated with industry prior to its launch in 1987, the MRRT was not.
As it stands, the MRRT is unlikely to affect most junior miners as it firstly applies only to iron ore and coal and not to gold, copper, nickel or uranium.
Secondly, miners with group profit of less than A$50 million will enjoy a low profit offset while those with profits between $50 and $100 million will have a phased out offset of $0.225 per $1.
Companies in the two sectors with profits greater than $100 million will be slugged with the full 30% tax on extraordinary profits.
The estimated outlay for miners under the new tax, which is due to come into effect on July 1, is around $10.6 billion over the next three years, according to the Treasury.
However, some big miners may escape paying the tax after confronting Treasurer Wayne Swan earlier this year.
Coalition resources spokesman Ian Macfarlane has said previously he knows of “many medium and large coal companies that will have no liability under this tax”.
“It wouldn’t surprise me at all that BHP won’t have a liability. BHP, Rio and Xstrata did skin Wayne Swan alive on this,” he said.
Proactive Investors is a market leader in the investment news space, providing ASX “Small and Mid-cap” company news, research reports, StockTube videos and One2One Investor Forums.