Stan Correy: Last week, Tony Abbott's people's revolt came to Canberra. This was Middle Australia, said the Opposition leader, venting their anger at the long list of taxes the Labor government wants to introduce.

This year, it's the carbon tax; last year it was the mining tax.

And the Opposition leader thinks he's on the winning team.

Tony Abbott: It won't just damage your standard your living, it will damage jobs. In fact this is Australia's new export under the carbon tax; it's your jobs.

There's 10,000 jobs that will go in the coal industry alone, and 16 big mines will close.

Stan Correy: Tax revolts are politically dangerous, and there's a real problem for politicians.

Talking about how tax actually works can be like watching paint dry.

But in fact, if the stakes get high enough, it's tough, fast, masterly and merciless as the fiercest football game. The trouble is, say the critics, tax authorities and governments play it like the Under 10s on Saturday afternoon. That's why the big mining companies nearly always win the tax game.

Michael Kobetsky: Using the football analogy, where they say that multinationals play football, soccer, like the premier league, where they use the entire park and they have a lot of skills, the analogy for tax authorities is that they play football like the Under 10s. When the ball is kicked in a particular direction, the entire team converges on that point, and by the time they get there, the ball's, obviously the multinationals, have moved on to another point.

Stan Correy: You're with Background Briefing, and this is Stan Correy.

Last year around this time, in Australia, there was a humdinger of a game, as the Rudd government tried to bring in a tax on the profits of mining in Australia. The Rudd government was not able to explain its complicated tax plans easily, and the big mining companies grouped together and spent $22-million on a PR campaign that won the battle among the punters. The government team lost and the captain was sacked.

SONG

Stan Correy: As it happened, I was in Ireland at the end of May last year. The annual Soul Music Festival was on in Dublin and I was listening to the music and reading The Financial Times. It's an interesting newspaper to read over there; The Financial Times is the international bible of investment capital. Ireland is virtually a tax haven, even Google saved $3-billion moving itself to Ireland. But this flow of money hasn't helped the ordinary Irish, and there are beggars in the streets.

SONG

The bit I found interesting in The Financial Times was the editorial that day, which was about Australia. Here's a reading.

Reader: Taxmen versus the Miners.

Miners like Oil Men are a tough lot. They are fighting like tooth and nail to derail the Australian government's plan for a 'super profit tax'. They warn it will hurt jobs by making Australia less competitive for mining investment. But the fact is that companies must invest where the ore is. And a reasonable tax reform does not destroy Canberra's reputation of solid and predictable mining governance. The charge that it turns Australia into the number one, 'sovereign risk issue', made by Tom Albanese, chief executive of Rio Tinto is absurd.

Stan Correy: From Peru to Mongolia to Zambia, global mining companies always complain when the T-word, Tax, is mentioned. They demand, and usually get, generous tax concessions.

As I was to find out later, Kevin Rudd had also read this editorial, and was using it as best he could to bolster his arguments for a profits tax on mining. This is what he was saying in Parliament at the time.

Kevin Rudd: But as he has raised the general question of resource rent taxes, Mr Speaker, can I also, for the benefit of the House, refer to an article which has recently been published in the editorial of The Financial Times, a leading, left wing journal. The Financial Times of London, it's coloured pink; be very suspicious.

Mr Speaker, it says this in the first paragraph or two:

Miners, like oil men, are a tough lot. They are fighting tooth and nail to derail the Australian government's plan for a 'super profit tax'. But just as oil and gas companies survived when a similar tax was imposed on them, the mining industry has broad enough shoulders to bear the new burden. Mr Speaker, it goes on to say:

It will be a long-overdue update of the mediaeval practice of levying royalties on gross production. Being regressive, royalties squeeze marginal producers while letting those with the most abundant mines keep the largest share of their loot. It goes on to say furthermore, in response to an observation recently by Rio:

The charge that it turns Australia into a Number One sovereign risk issue, made by Tom Albanese, CEO of Rio Tinto, is absurd.

Stan Correy: Kevin Rudd quoted the editorial again at a media conference when answering a question from the Canberra press gallery.

Kevin Rudd: You have the opposition and the mining industry saying that the government's proposed changes to taxes represent a knife to the throat of the industry. What a load of balderdash! What a load of absolute bunkum! I mean let's just get straight this: I mean, have a look at this book in yesterday's Financial Times in London. This is the considered analysis of The Financial Times in London; can I just say when you therefore have a stream of misinformation for a bunch of mining companies, who just don't want to pay more tax, guess what? It gets pretty willing out there.

Stan Correy: But the journos at the press conference were much more interested in the political in-fighting behind the scenes. At this stage, Rudd was wobbling, and the main game for them was Rudd losing control of the political debate.

The people who were really watching Rudd and his super profits tax were other countries around the world, where the big miners were dug in.

If he could pull off taxing the miners, they may have a chance, too. But it didn't happen. Rudd lost his job, and the super profits tax is dead and buried.

But its global appeal lingers on. Just last week, a South African politician on a visit to Australia, told Reuters that the Aussie profit tax was a good idea because South Africa was getting a raw deal from the mining companies too.

Some of the big mining companies n South Africa have already complained about those comments. And the South African government went into damage control and denied they're even thinking about an Aussie-style tax.

Journalist with The Australian Financial Review, Laura Tingle, said the big miners were very aware they couldn't let Australia open up a tax on mining, or the others would want some too.

Laura Tingle: Without a doubt. And people within the mining sector have said this to me privately, the miners, who of course are generally international companies, were aware that if the resource rent tax got established in Australia, it was only a matter of time before it became a domino effect in other resource-rich countries, and they'd be paying resources taxes all around the world, which they currently weren't subjected to.

Stan Correy: Laura Tingle was also critical of the media.

Laura Tingle: I think they didn't serve the public well because they allowed themselves to be too much engaged in what others have called 'He said', 'She said', journalism, largely because it was such a complicated issue they couldn't form an independent view, if you like, or a sceptical view of the issue because they just didn't understand it. So they would just repeat the claims, or report the claims, unverified, if you like, of both sides, or at worst, simply just report the fight at the political level, about the mining tax without actually trying to write enough about .'Well, what's the idea behind this tax? What are the various ways it could go about it? What are the various issues here that can be resolved? Why has the Henry Tax Panel gone for such a complicated model? Why is it that they think that this is the best thing that they can do?' I think it was in that area where I know a lot of people would s ay to me, 'Look, I just want to understand what the issue is here', and that information just wasn't readily available to them.

Stan Correy: There was global scepticism about the industry's rage against the tax.

On CNBC an Australian mining analyst was grilled about comments that Australia was a sovereign risk because of the mining tax. The mining analyst repeated the well-worn industry retort: If you tax us, we'll leave.

Mining Analyst : If you raise the barriers to entry, they're going to take their funds in put them in a project that is of equal value, that provides superior financial returns because of the tax regime in the alternative country.

CNBC Reporter: Grant, isn't the reality that they'll complain about it, they're not happy about it, they'll do what they can to put pressure on the government to change its mind, but ultimately, the material is in the ground n Australia, it's not anywhere else that they want to be. They will continue to mine in Australia and they'll invest in Australia, they'll just unhappily have to hand over some of that profit that would have gone to shareholders to the government, effectively.

Stan Correy: BHP Billiton and Rio Tinto are the world's biggest mining companies. For years, they'd been damaged in the media and in the marketplace, by what investors call 'activist risk'. All over the world, activists, NGOs, have relentlessly lobbied and pursued them and in some cases succeeded in tarnishing their global brand.

The voice of English capitalism, The Financial Times is not an NGO, and it was effectively saying that the miners' argument had no clothes.

The Minerals Council of Australia was having none of it. They had put $22-million into fighting the tax and CEO Mitch Hooke said The Financial Times was talking rubbish.

Mitch Hooke: I read those articles and essentially what I saw was the sort of left field commentary coming from what unfortunately in that space, was the chattering classes. Now we took it on all through that debate; we stayed on policy integrity; we stayed on substance and fact; we kept drawing to people's attention, Don't presume for one moment, that just because Australia has natural endowment in resources, that we have this space all to ourselves. Because of globalisation, capital, people, resources, moves faster than a blink and the argument coming from Treasury that because the resources are in the ground, they won't move and our investment won't move. Well that's absolute garbage.

Stan Correy: Mitch Hooke, CEO of the Minerals Council of Australia. The Council won their fight.

What the 'chattering classes' write at The Financial Times is consumed on a daily basis by some of the most influential players in the world's financial markets.

But the Australian media didn't pick up on the cynicism of the Miners Council outrage about the profits tax.

Laura Tingle, Chief Political correspondent for The Australian Financial Review, says she thinks they were distracted by their own specialisations: politics or business.

Laura Tingle: Well I think two things started to happen. Certainly in the print media the political reporting and the financial business journalists, tend to operate in separate spheres of influence. So that political journalists in Canberra were seeing the issue very much in political terms. They were seeing that it was causing the government trouble, that there was angst within the government about it; the opposition was on the attack. Business journalists were reporting the increasing waves of information being fed out by the mining companies about what impact it would have on their operations about these complexities, and very legitimate questions which were very hard to get answers to. And then you had the political reporters seeing that the government was in trouble and also starting to see just the power of the mining lobby, in terms of its advertising campaign and its influence in other areas, for example, you'd start to hear that businesses outside the mining sector were being politely but firmly told not to buy into this argument, that it might affect commercial relationships if other companies started to come out in defence of the government's proposal. So it was quite a stunning double act, if you like.

Stan Correy: Laura Tingle, Chief Political correspondent for The Australian Financial Review. In an article last year, she described how the Australian media were shafted by the mining companies and their well-resourced lobbyists.

The big miners were not finished with The Financial Times. The Chief Executive of Xtrata, Mick Davis, wrote a letter to the editor. And here's a reading:

Reader: Sir, The editorial regarding the Australian Resources 'super profits' tax betrays a disturbing level of ignorance of the proposal and utterly misrepresents the mining industry's position ... no other country is considering imposing such a punitive tax on its mining industry.

Stan Correy: The letter went on to say:

Reader: Australia's resource taxation will be isolated as the highest in the world at 57%. Indeed, many resource-rich nations regard this tax as an opportunity to gain a larger share of global mining investment.

Stan Correy: Xtrata is one of the big three global mining companies that operates in Australia. Its headquarters are in Zug, Switzerland. Also in Zug is Xtrata's majority shareholder, Glencore.

Glencore is a private company that was recently described in a Reuter's profile as the biggest company you've never heard of. It has a controversial past; it was founded by US commodity trader, Marc Rich, who was charged by the United States government in the 1970s for evading taxes.

In his final act as President of the United States, Bill Clinton controversially pardoned Marc Rich. His former company, Glencore, still makes its fortune in trading commodities, but doesn't mention its founding father on its website.

Chief commodity writer for Reuter's in London, Eric Onstad.

Eric Onstad: We talked to a lot of people who have had dealings with Glencore in one way or another, and a lot of them didn't want to be quoted by name because of the sensitivity of their relationship with Glencore, and because Glencore likes to remain under the radar and have this anonymous position, mainly because of its trading aspects. They've been very, very shrewd at keeping their positions secret, so that a lot of times people on the wrong side of them will be surprised and end up losing business and they realise that they've been kind of outfoxed.

Stan Correy: Glencore doesn't only buy and sell commodities, they'd become a commodity producer on almost every continent.

Eric Onstad: They've gathered a lot of assets over the years and the reason is because they have people all over the world in these offices and they have the connections of the people who they have been marketing and selling the copper, and sugar and grains for. So when there is an opportunity, when a company maybe is short on funding, they'll come in, provide some funding, and often it ends up in them scooping up the company and buying it out. So they have quite a range of mines, sugar processing and grain depots scattered all over the world.

Stan Correy: One of the mines they own in Australia is the CSA copper mine in Cobar in Western New South Wales.

Now, believe it or not, there is quite an important connection between what is going on in Australia, and Zambia.

Both countries are rich in minerals. Australia earns money from letting companies dig out the stuff and sell it. Zambia also lets them dig it out, but earns practically nothing. And Zambia is aware of being, in effect, ripped off, but they haven't been able to do anything about it because of the same threats as those used here. The miners say, if you make us pay more, we will leave altogether.

The United Nations is preparing a report on how developing countries can stem the flow of profits from multinational corporations, what's called 'transfer pricing'.

A month ago, a confidential tax audit was leaked. It's a rare insight into the commercial and political realities of mining taxation. From the University of Melbourne Law School, one of the authors of the UN Report, Michael Kobetsky.

Michael Kobetsky: It's obvious in this case that transfer pricing has been used to shift profit out of Zambia, in that a mining company has derived no taxable income in the country in which it extracts the minerals. What the report reflects is that the multinational has on purpose provided very limited documentation, and it looks like they've used transfer pricing, but they haven't done it at a more sophisticated level, where they've perhaps argued that transactions were set at certain levels because of market conditions, or something along those lines. But rather, they've just ensured that there's a very limited amount of information available to the Zambian tax authority.

Stan Correy: The mine in question is the Mopani Copper and Cobalt Mine in Zambia. And its majority owner is the biggest company you've never heard of, Glencore.

When the audit report was leaked in early February, there was political outrage in Zambia and the opposition demanded answers from the government. After all, 2011 is an election year for the country.

Vice President Kunda said this in the Zambian parliament.

Reader: We don't want to impose punitive taxes. The Prime Minister in Australia lost his job because of imposing punitive taxes. We don't want to make the same mistake.

Kevin Rudd: Have a look at this bit in yesterday's Financial Times in London. This is the considered analysis of The Financial Times in London. Can I just say when you therefore have a stream of misinformation from a bunch of mining companies who just don't want to pay more tax, guess what? It gets pretty willing out there.

Stan Correy: Kevin Rudd was actually drowning, not waving.

There was an important conference about the economics of resources in Australia a few weeks ago. All the big names were there: economists, Treasury bureaucrats, the Reserve Bank, academics.

One of the big questions being analysed was - How does a developed country like Australia get a fair share of the resource wealth it produces? And (and this is important) how do you explain that to the public?

John Freebairn: And it's also true that the economic arguments are fairly difficult and can't really be told on a 10-second grab on telly.

Stan Correy: The University of Melbourne economist, Professor John Freebairn was one of the prominent supporters of the super profits tax. In their advertising campaign, the miners framed their argument so as to make it seem that taking money out of their profits would make ordinary Australians poorer.

To Freebairn, the argument is more correctly the other way. The revenue from the profits take, could mean that corporate tax could be reduced, and this would make Australians richer.

John Freebairn: What happens is capital now can earn more in Australia, so more people invest in Australia, that means we have more sophisticated machines and buildings to work with. Our productivity goes up, and we will get higher wages. Now even to my economics students, I have got to work on that, over a few lectures, to get that story through. To tell that to information overburdened Australian public is an enormous challenge, and it wasn't done by the government.

Stan Correy: Also at the resources boom conference was ANU economist, Professor Bob Gregory. What interested Bob Gregory were the comments from Reserve Bank governor, Glen Stevens, about the ownership of Australian resources. Bob Gregory.

Bob Gregory: The resources belong to Australia, and therefore how much should we charge somebody to use them. Doesn't seem to me at all strange that you might want to charge a foreigner a bit more than a local, that is, that if all the profits go to New York, people might feel quite differently than if all the profits went to the local hospitals, for example. But it seems to me, emotionally, that the higher the foreign share the more in favour you would be of a mining tax.

Stan Correy: Given the complex ownership models of multinationals, it can be very difficult to work out which country gains the most from a mining project.

Bob Gregory: Take the extreme example. Supposing the extreme example was that the miners operated as an enclave, that is, they brought in the workers, they brought in the capital, they sold the exports overseas, they took the money. So it was an enclave as these things can be in places like New Guinea, then there is hardly any gains to the local community at all. So the idea that we should try and think about - make sure these gains come into Australia is important, and foreign ownership is a part of the thing that affects the enclave nature of mining.

Stan Correy: Multinational corporations think ownership is important because that's how they work out their international tax policy. But in the politics of tracing corporate ownership, there's a major problem - racism and xenophobia. Bob Gregory.

Bob Gregory: Foreign ownership used to be an interesting idea in the sense that people wanted to attract foreign capital, because they saw foreign capital as bringing in technology, which it did. And Australia was built on foreign capital. But the sort of left wing of academia, the left wing policy, focused on the ownership and it became sort of discredited. People didn't like where it was going to go. So discussions of ownership sort of died for a long, long time in Australia. And on balance, it's probably a good thing it's died. But in this instance, it just seems to me, it does make a difference who owns the mine, especially given that the mine doesn't have deep connections to the community by and large. The workers can be foreign, the capital can be foreign, it doesn't hire that many workers. So I think, you know, government take is important.

Presenter: Personal taxes are rising. But is big business paying its fair share.

Stan Correy: People are raging about tax all over the world. But not all the people's revolts are the same. In Europe and even the United States, the rage is against corporations not paying enough. But in Australia last year, that wasn't the case. Here's one of the ads produced by the mining companies against the mining tax.

MINERS AD:

Chorus: Oh, you're going to get whacked!

Man: It could be your job.

Chorus: You're going to get whacked!

Man: Or your superannuation.

Chorus: You're going to get whacked!

Man: Or your electricity bill.

Chorus: By the mining tax.

Man: The extra mining tax is going to affect Australians everywhere, every day. All that's certain, somehow, some way, there's a price to pay.

Chorus: Oh, you're going to get whacked!

Man: Authorised by Simon Benson for the Association of Mining and Exploration Companies Perth spoken by N Tate.

Stan Correy: The PR campaign for the miners was going gangbusters and hitting all the right notes. And the media were impressed.

In the midst of it all, in the Sydney Morning Herald , satirist, Mike Carlton took a swing. Here's a reading.

Reader: I watched the mining magnates wringing their hands, rending their garments and uttering up their piteous cries about the horrors of the resources super profits tax. They were the picture of abject misery when the Prime Minister visited Perth on Wednesday.

Poor Gina Rinehart could barely speak. 'Axe the tax!' she croaked, double chins wobbling furiously. A crowd of well-dressed demonstrators rattled their jewellery and brandished rather-too-neatly-printed placards.

I did have one useful thought though. If La Rinehart could be put out to stud with her Queensland resources counterpart, the enormous and almost perfectly spherical Clive Palmer, what a dynasty might arise one day. Almost an entire new species, really.

AXE THE TAX DEMO

UK PAY YOUR TAX DEMO

Stan Correy: And in the UK, it's not the billionaires protesting but students and recently sacked public sector workers.

Newsreader: Personal taxes are rising; But is big business paying its fair share.

Woman: It's sort of at the heart of the capitalist society really. Make as much money as possible and keep your costs down as much as possible.

Stan Correy: In January, a British newspaper published a list of UK-based corporations and the number of tax havens they used. The list helped fuel the anger of British citizens facing cutbacks in services from the government. On the list were the following companies:

Rio Tinto: 18 tax havens

BHP Billiton: 24 tax havens

Xtrata: 7 tax havens.

Stan Correy: In Australia, those same companies are leading a tax revolt of their own. There was a brief moment of public and media anger in February when those same global miners released their profit results.

And it was revealed how much the mining industry spent on their anti-tax advertising campaign, but the whole issue has more or less gone away.

The story for the media is still the Federal government's political management of the tax debate.

At the University of Tasmania, Richard Eccleston specialises in the politics of tax reform.

Richard Eccleston: As a political scientist, the real issue here is what the mining tax debate says about the long-term ability or the ability of the Australian political system to devise and implement contested policies that respond to long-term challenges. So whether we're talking about climate change, the aging population, public finances and taxation, it doesn't really matter. This is obviously a huge dilemma in al democratic political systems and political scientists talk about state capacity. And it's a fine line. Democratic accountability is very, very important, but you need a political system that doesn't become captive to short-term sectional interests, which leads to a very reactive type of policy and isn't in the long term, national interest.

Richard Eccleston, from the University of Tasmania, and what he describes is exactly what happened in Zambia.

Zambia is a resource-rich country that's had a heated debate about mining taxes for many years.

BBC Reporter: Very few African countries have much wealth to tax. Average incomes are too low, businesses operate on the black market, tax collection agencies are weak, but Africa can tax its natural resources, usually extracted by Western companies who repatriate most of their profits.

Stan Correy: That's the beginning of a BBC radio documentary from 2007 called 'Zambia and Copper'. The reporter, Maurice Walsh, went to Zambia to find where the money from Zambia's copper wealth was going. Not much of it was staying in Zambia, and most of the tax money the government collected, came from the income tax on the mineworkers' wages. So what's Zambia got to do with the Australian debate about mining tax?

In the dying days of our Federal election campaign last year, Zambia, along with a few other African countries, was touted as being a much better place to invest for mining than Australia. Australia is, they say, unsafe. This is the terminology which doesn't mean we're riddled with crocodiles and all set about with fever trees, it's used to mean they can't make as much profit here.

Here's opposition leader, Tony Abbott at the National Press Club, the week of the Federal Election.

Tony Abbott: The government had clobbered Australia's most successful industry with a proposal for the world's highest taxes. And even before Labor's mining tax has been implemented, it's already done massive damage. In just one year, Australia has plunged 13 places in the world rankings as a safe place to do business in mining.

We now rank, this is Australia, we now rank behind Argentina, Tanzania, Zambia, Ghana, Namibia and Botswana as a safe place to invest in mining, thanks to the actions of this government, and this from a government which claims to be a good economic manager.

Stan Correy: The Opposition leader was quoting a survey of the safest places for mining companies to invest globally. Incidentally, that survey is conducted by a Canadian think tank that is funded heavily by the Canadian mining industry.

Tony Abbott used the same information several times during media interviews in the election week last year.

Maurice Walsh: It's late afternoon in northwest Zambia, and the sun is glowing red through a dusty haze as our little plane begins its descent. Below is the copper belt. From here, the countryside looks flat and dry, with umbrella-like trees and single storey houses. Since the late 1920s, the land below me has been the source of most of Zambia's earnings.

Stan Correy: When Maurice Walsh arrives in the copper belt, he's struck by how little wealth seems to have trickled down to the local population. He talks to local mining tax economist, John Lungu.

John Lungu: The mines are booming, the people are still here, but there is no investment going into the Social Services. So this is the tragedy of the current development.

Maurice Walsh: There doesn't seem to be any trickle down. In other words, the booming mining industry that is here, isn't working its way down to the people.

John Lungu: No, it isn't.

Maurice Walsh: This shabbiness could take a visitor by surprise. After all, the price of copper has risen almost fourfold in ten years, surely at least in Kitwe, we should be able to see evidence of a boom. Where are the new roads, schools and hospitals funded by taxes on copper? The reason that none of these benefits are visible lies in the secret deals that the Zambian government's concluded with the new mining companies when the state copper giant was privatised in the 1990s. The development agreements as the deals between the government and the mining companies are known, revealed that the mining companies were given generous tax breaks and a special tax deal on their profits, at a lower rate than any other business. But a key fact was the amount of tax the mines would pay on the price at which they sold the copper to the world market. This is known as a royalty. The Zambian Mines and Minerals Act stipulates that the mining companies should pay 3% royalty on its sales, but John Lungu discovered that the rate agreed in the development agreements was just o.6%.

Stan Correy: One of the reasons that the BBC could do their report on Zambia was that the secret development agreements had been made public by NGOs in 2007. In 2008 the royalty was increased to 3%. And the Zambian government also tried to introduce a windfall profit tax, just like Australia's super profit tax.

On the phone from Paris at the French NGO, Amis de la terre, Anne Sophie Simpere.

Anne Sophie Simpere: In 2008 there was an attempt from the Zambian government to change the tax regime, and there was a new law that introduced what they call a windfall tax on exceptional profits. And it was due to the boom of copper prices at that time. And from what we managed to know, only two out of 12 companies agreed to pay the windfall tax, but at the same time pursued the government for breaching the development agreement. All the others refused to pay, and indeed threatened to leave the country. And they were claiming that the country was too unstable.

Stan Correy: But just like in Australia last year, the windfall profits tax was abandoned, and the miners didn't leave the country. Many argue they wouldn't have anyway, but we'll never know.

More recently, last month, a leaked tax audit report from the Zambian tax authority exposed new evidence of opaque tax arrangements at the Mopani copper mine. The majority owner of the mine is the Swiss-based commodity trader, Glencore. Glencore has refuted the audit's conclusions in a statement to a British NGO, Christian Aid.

Here's a reading of part of that statement.

Reader: We refute the conclusions of this draft report and we question the reasons for the manner in which it was leaked. This draft report contains factual errors and inaccuracies. It is based on broad and flawed statistical analysis and assumptions.

Stan Correy: One of the Zambian NGOs who released the audit report is the Centre for Trade and Development. On a mobile phone from Lusaka is Savior Mwamba. Because of the quality of the line, we've re-voiced the interview.

Savior Mwamba (revoiced): The report is important for a number of reasons. Firstly, it's already common knowledge in Zambia that the mining sector is not contributing as much as it should to the country. For example, the mining sector's contribution to GDP is less than 2%. Some of the mining companies haven't paid any corporate tax for the last 15 years, because they argue they're still not making profits. We have always suspected there is more to this, and we always have suspected that mining companies are engaged in some funny business around tax.

Now what the report does is basically confirm some of these fears. But also the government has been arguing against reforming the tax regime in the mining sector, saying, no, they need a much more attractive regime to attract foreign direct investment. There's evidence existing the world over, there's much more to attracting foreign direct investment than tax policy.

Tax is not the only single factor that determines foreign direct investment, so there has been all this debate going on.

Stan Correy: That's a re-voiced interview with Savior Mwamba.

That argument, that tax is the dominant factor in attracting mining investment, was also used heavily by the big miners in the Australian tax debate. When the Mopani audit report was leaked, it naturally caused a political stir in Zambia.

Zambia didn't want to become like Australia, but has Australia become Zambia? The Mopani audit report reveals how weak Zambian political institutions are when confronted with corporate power.

Here again, in a re-voiced interview Savior Mwamba.

Savior Mwamba (revoiced): Because of the weak capacities, essentially part of the problem is the inability of the government, the tax authorities, the Zambian revenue authority, to be able to assess to do proper tax assessment, to be able to know what kind of tax regime, ought to be put in place, given the different structures of the industry.

Secondly, the issue of enforcement, so they're able to force the tax authorities to do regular monitoring and collect as close as possible, the right amount of taxes.

Thirdly, the mining companies are obliged to submit their annual returns and their figures. But multinational companies are still not obliged to report country by country. They report on a global basis, so it makes it very difficult for authorities in countries like Zambia to pick up the real figures.

Stan Correy: You're listening to Background Briefing, and on the website you can read the audit report and a summary of the main points done by one of the NGOs.

So what exactly did Glencore do? Several years ago, financial commentator, Satyajit Das wrote a special report on derivatives and tax planning, so Background Briefing asked him for his comments on the audit report.

Satyajit Das: Increasingly, what mining companies do is use derivatives, which are really long-term price guarantee arrangements, or price support arrangements, to protect themselves from price movements. Now what actually has happened, or what is alleged to have happened here is that the mine in question, Mopani, entered into certain transactions, where the prices, using these derivative contracts, were artificially lowered, which had the effect of lowering the revenue to Mopani in Zambia, and obviously the copper and cobalt is worth whatever the copper and cobalt is, but because the parent company of Mopani which is a company called Glencore, which is a Swiss-based commodity trading firm, was able to acquire through these derivative contracts, the copper and cobalt at low prices. And then what they would have done is sold it at the current market price in international markets, and therefore the profit from the actual sale would have been located not in Zambia where it would have been taxed under Zambian law, but somewhere else in the world where it might have been taxed at a lower rate or not at all.

Stan Correy: Satyajit Das.

The complexity of these financial instruments, such as derivatives , are notoriously opaque. They're meant to be. If they were simple, as Oscar Wilde said, they may be understood. For tax authorities it's like unravelling spaghetti. It's also how companies have their single biggest profit centres in places where they have no physical presence.

Glencore is in a difficult position at the moment. They're trying to shed their secretive private company image and go public. In other words, list on the global stock markets, so you or I or our superannuation funds could invest in their business.

But being a public company means you need to be much more transparent in the information you provide to your auditors and the public.

And in the case of the Mopani audit, the auditors were struggling to get some key facts from the Glencore owned company in Zambia.

Satyajit Das has studied the Zambian situation, and it's not pretty.

Satyajit Das: So basically, the Grant Thornton auditors rather surprisingly, in the course of their report, made the specific observation that never in the history of dealing with mining companies had they actually had less co-operation or less disclosure, and these people obviously had done many of these audits around the world. So that's quite extraordinary in its own self.

Stan Correy: The tax minimisation strategies used by Mopani, transfer pricing and the use of derivatives, were exactly the kind of techniques that the Zambian government was anxious about when they introduced their tax reforms in 2008. A specialist in the politics of the Zambian copper business is Dan Haglund.

Dan Haglund: And I think it's quite interesting and quite a shame for the Zambian economy, quite unfortunate, that these issues were actually high on the agenda during the debates about minerals and taxation in the mining sector in 2006-2007.

Stan Correy: And, says Dan Haglund, what's in the Mopani audit is not uncommon in the rest of Africa. It's all about what's in the contract, and who gets the most benefit.

Dan Haglund: The contracts and the incentives given to investors as they came in, have often turned out to be counter to the interests of the wider population and interests of the country's development. If the initial terms of the contract between a state and an incoming mining company are unfair, if those terms are unfair, then the agreement won't be stable. Because there will be mounting pressures and then there will in one shape or another, be from renegotiation or some changes to these physical terms. So mining companies need to realise that if they really want stable operating environment over the longer term, then they need to ensure that whatever deal they strike when they enter the country, is actually seen as fair and equitable to a wider cross section of the population of that country.

Stan Correy: Dan Haglund, a former banker who now works for a consulting firm called Oxford Policy Management in the UK.

There's an incredible irony for Australia in what Dan Haglund was describing. In Africa and Latin America, Western mining companies are being pressured to be more transparent and less secretive.

The Australian government is under pressure too, to be more transparent and less secretive in the way it manages tax reform, especially when it relates to doing deals with multinational corporations.

So it's all rather like tangled spaghetti, and the big miners have wall-to-wall lawyers and tax specialists working on their bolognese.

But there are other tax battles that are important to this story.

In media interviews this year, Australian Taxation Commissioner Michael D'Ascenzo has been talking about the tax gap. That's the yawning gap between the profits made by companies, and the actual revenue the government gets in. In his sights is the mining industry. An industry that gets, as one tax law expert told Background Briefing, dole payments or tax concessions that help them in their risky business.

The people who actually understand how some of the complex tax schemes work, believe that gap won't be closed for a long time.

Satyajit Das.

Satyajit Das: If you get somebody who's paid $100,000 to work for a tax department, and somebody who gets paid $10-million to effectively help companies structure their tax affairs to minimise the amount of tax, clearly there is going to be some incentive structure which changes where the talent flows. The second element is even the best-meaning and best-skilled tax authorities face certain barriers to enforcement, because there is a political process which overlies this. And the political process clearly is that politicians, at different levels, have different incentives regarding regulating business. The first of course, is campaign donations. Business is a very important donor or source, for politicians. The second, which is also there is businesses always appeal to the fact that they create jobs, they create wealth, they pay taxes, so interfering with that is sometimes a very difficult for the political process. So at both levels, which is a skill level and the political and social willingness to tackle these sorts of problems, there are huge, huge issues.

Stan Correy: Later this year, the Federal government is planning a tax summit. The pressures of the political process are complicating any meaningful debate about tax reform.

Just last week the Gillard Labor government announced that they've solved most of the problems with Mining Tax Version No.2. But this less onerous tax on mining company profits still has to be approved by the parliament. And now there's the carbon tax.

The rhetoric seems like a replay of last year's anti-mining tax slogans.

CARBON TAX RALLY

Stan Correy: Early last year, as the Rudd Labor government launched its super profits tax, a new book on money and politics was launched. The theme of the book was how well-financed lobbying distorts the discussion of politics and business.

From the University of Melbourne Law School, Joo-Cheong Tham.

Joo-Cheong Tham: The mining companies are entitled to have a say in the process. There's nothing in what I say that contradicts that, because they have particular interests, and also have particular expertise that can bring to bear. The question is in what manner. One can approach a question by reflecting on what I saw as the most disturbing moment in terms of this mining tax controversy, where after Kevin Rudd had been toppled as Prime Minister, and Julia Gillard had assumed the Prime Ministership, and she committed to working out a deal with the mining companies. And when the mining companies issued a two week ultimatum to the new Prime Minister to say look, if we don't reach a deal that accommodates our interest, we'll resume our advertising. It's a pretty remarkable testimony as to the power that both the financial and political power of the mining companies, that particular moment I think is going to reverberate through Australian politics for years to come.

THEME

Stan Correy: Background Briefing's Co-ordinating Producer is Linda McGinnis. Research by Anna Whitfeld. The technical operator is Jenny Parsonage, and the Executive Producer is Kirsten Garrett.

Don't forget, there are links to reports mentioned in this story on our website, and you can put up your thoughts on the story at the comments link.

I'm Stan Correy and you're listening to ABC Radio National.