Bougainville Copper Ltd in legal conflict over taxes

Although its huge copper-gold mine at Panguna was closed by the Bougainville Revolutionary Army in 1989, followed by an appalling civil war; and though the mine will almost certainly never re-open Rio Tinto has been making money out of its investments during the years since. Now the Papua New Guinea government wants what's due to it in taxes. Not surprisingly, Rio Tinto doesn't agree.

BCL, Sode in legal bid over K27m tax

PNG Postcourier

29 March 2005

Bougainville Copper Ltd is at loggerheads with chief collector of taxes David Sode over a tax assessment of K27 million from incomes of various investments.

The tax office issued a notice of an initial tax assessment of K28,075,581 on September 24, 2003 following an audit that found BCL - a subsidiary of mining giant Rio Tinto - had been generating substantial income from investment shares in Australia and Papua New Guinea, through treasury bonds and deposits.

The K28 million was income tax covering the financial years 1999, 2000 and 2001 and was supposed to be paid on or before October 24, 2003.

Instead, BCL objected to the tax assessments for each of the relevant years on November 24, 2003. Garnishee notices were issued under Section 272 of the Income Tax Act on February 19 for the tax office to collect the tax due and payable from BCL.

The next day, BCL filed successfully for court injunctions that had the effect that it was not liable to pay income tax and to restrain the tax office from collecting.

BCL followed up with a March 24, 2004, "notice of reference to arbitration" leaning on the Bougainville copper agreement which provides for arbitration between the State and BCL on issues of contention.

IRC, meanwhile, had voluntarily withdrawn the Section 272 garnishee notice and worked on amended tax assessments that resulted in a November 17, 2004 reduced figure of K27,805,115.75 payable by BCL.

Fresh garnishee notices were issued on January 4 this year, when BCL did not pay.

Two days later, BCL filed further court papers to restrain IRC from collecting tax until after the hearing of a taxation appeal followed by lodging of two more court notices, including on March 18, this year, wanting all the proceedings including any notices issued by IRC stayed until the completion of an arbitration.

All these issues went before the National Court presided by Justice Gibbs Salika on holy Thursday with BCL represented by a Queen's Counsel Charles Michael Scern backed by Gadens Lawyers' Erik Andersen and Robert Lindsay. Mr Sode was represented by two Queen's Counsels - Marshall Cooke and Malcolm Veritomos and briefed by Greg Sheppard, of Young and Williams Lawyers. BCL argued that the 1974 amendments to the Bougainville Copper Agreement on the taxation regime under which they operate "does not, or should not, apply from the date BCL ceased operations for the extraction of minerals".

Mr Scern, who put BCL boss Paul Coleman on the witness stand, told the National Court that it costs K500,000 to run their Port Moresby office of four staff and the enforcement of the tax assessment would impact on their employment and the overseeing of shares for some 14,500 local people in BCL. He said if BCL was forced to pay, this would require existing K14 million in the country and foregoing shares in investments in Australia. He said the prejudice is wholly against BCL as it stands to lose on interest on investments, lack of compensation even if they win the case, and lack of compensation on missed capital gains.