BHP has lost its High Court appeal in a tax case over its controversial Singapore marketing hub, leaving it with a $125 million tax bill.

Key points: The High Court rejected BHP's argument that its British and Australian arms are not "associates" for the purposes of tax laws

The High Court rejected BHP's argument that its British and Australian arms are not "associates" for the purposes of tax laws The decision brings to an end a long-running dispute and could have implications for other companies

The decision brings to an end a long-running dispute and could have implications for other companies Tax authorities globally are keeping a close watch on the use of marketing hubs in low-tax nations

The case could set a precedent with implications for other corporate giants, as tax authorities globally continue to question multinational marketing-hub tax structures.

The High Court rejected BHP's argument that its British and Australian arms are not "associates" for the purposes of tax laws.

The decision brings to an end a long-running dispute between the Australian Taxation Office (ATO) and the mining giant over the use of its Singapore marketing arm.

BHP had also been hit with tax bills spanning 11 years that totalled $661 million in primary tax, which it settled with the ATO in 2018.

Decision to have broader relevance

ATO Deputy Commissioner Rebecca Saint said the decision would have broader relevance to dual listed companies, staples and other similar structures.

"The precedent set by the decision provides clear guidance that will assist the ATO in its efforts to ensure that other multinationals pay their fair share of tax in Australia," Ms Saint said.

The decision closed the dispute between the ATO and BHP in relation to the on-going Australian taxation of the marketing hub profits, she said.

"Australians can have full confidence that BHP, as one of Australia's largest companies, is paying full tax on its profits from the sale of Australian commodities," she added.

A BHP spokesman said the decision provides clarity on the interpretation of a technical area of federal income tax rules.

"It means that BHP will pay a total of approximately US$87 million ($125 million) in additional taxes for the income years 2006 to 2018," he said.

He said BHP had contributed about $71 billion in taxes and royalties over the past 10 years.

"The additional taxes that BHP will pay as a result of this decision represent less than 0.2 per cent of this contribution," he added.

How the dual-listed tax structure works

The British side of BHP sells coal to the group's marketing hub in Singapore.

Due to the company's dual-listed structure, BHP Australia owns 58 per cent of the Singapore operation, while its sister company in Britain owns 42 per cent.

BHP agrees that under controlled foreign corporation (CFC) rules it must pay Australian tax on the 58 per cent share of the income the Australian arm earns from Singapore.

But it fought the ATO over whether it must also pay tax on the share of the income the British arm earns from its sales of Australian goods, including Hunter Valley coal, through Singapore.

After BHP had won the case in the Administrative Appeals Tribunal (AAT), the full Federal Court upheld an appeal from the ATO, leaving the mining giant with a bill for US$87 million in primary tax dating back to 2006.

The appeals court held its Australian and British arms were associates and therefore subject to what the company claimed was a "top-up tax" in Australia under Controlled Foreign Companies rules.

The High Court on Tuesday upheld that view, finding that its Australian entities "sufficiently influenced" each other to be considered associates.

While the primary tax bill is $125 million, BHP said in its 2019 annual report that the ATO had not, at the time, determined that the Group is liable for any penalties.

Use of marketing hubs under fire

Several countries are already taking tough measures to prevent multinationals from shifting profits into jurisdictions where they pay little or no tax.

Countries such as France and the UK have already imposed taxes on revenue rather than profit, and there are worldwide discussions about a global minimum tax.

In Australia, the use of marketing hubs has been a source of common dispute between the ATO and a raft of companies.

In 2018, after the transfer pricing dispute settlement, BHP ended up paying the ATO $529 million, calculated over the 2003 to 2018 financial years, and without any penalties attached.

The low-tax nation of Singapore has also long been in favour with tech giants such as Google and Facebook.

Google reported a corporate tax expense of only $26.5 million in Australia for the 2018 financial year, and Facebook paid $11.8 million, despite earning billions in advertising revenue.

But late last year, Google said it had settled its long-running tax dispute with the ATO with a payment of an additional $481.5 million on top of its previous tax payments, covering the period from 2008 to 2018.