The proposed Resources Super Profits Tax is providing a focal point for an otherwise unremarkable agenda for tax reform.

If lawyers ever needed reminding of the intimate link between government policy activity and legal work, the arrival of the Federal Labor government in Canberra in 2007 has certainly provided some powerful examples. Elected on the back of a perceived electorate backlash against the Howard government’s WorkChoices, the Rudd government immediately went to work to implement an employment and IR agenda of its own. The rest, as they say, is history and it is a rare law firm that has not seen a boost to employment and IR workflows. ALB has covered this pattern in previous editions, with stories such as Thomson Playford Cutlers doubling the size of its workplace relations practice over the past year.

Tax lawyers started 2009 wondering if their own version of workflow nirvana was just around the corner – or to be more precise, nirvana for private practice lawyers and nightmare for in-house lawyers. The release of the much-anticipated Henry Review was due and there was a general expectation of root and branch reform of the nation’s taxation laws.

 

Things did not exactly go to plan. For reasons best known to itself, the government delayed the release of the report till April 2010. The reform agenda subsequently foreshadowed by the government has left most commentators bemused. HopgoodGanim taxation and revenue special counsel Damian O'Connor summed up the general sentiment when he described the reform measures known thus far as a series of “headline tax issues” rather than the fundamental reforms which had been widely expected.

But what is missing in breadth is compensated by sheer controversy and the turmoil surrounding the resources super profits tax is causing companies to turn to their lawyers for help. Blake Dawson partner Duncan Baxter told ALB that RSPT-related work – advice to boards on tactics for managing the RSPT and participation in the consultation process – has seen his already busy team approaching full capacity. He frankly conceded that if the government had, in addition to the RSPT, implemented the Henry recommendations to anything near their full extent, this would have put a tremendous strain on the team’s resources. “It’s an unusual tax,” he said of the RSPT. “Conventional tax advice is a piece of the puzzle, but then there is the economic impact and looking at how it shifts the balance of risk between the miner and [government].”

There are parallels between business preparations for the RSPT and another famous but as yet undeveloped Rudd initiative in the emissions trading scheme. The ETS may be officially on hold until 2013, but businesses still require advice as to what it may entail for future operations. Mallesons’ Louis Chiam, for example, told ALB the firm’s climate change practice is still active: “For example, if our clients are developing major new projects they still need to allocate the carbon risks,” he said. “We are also doing a lot of work around green buildings and green marketing and we expect those areas to continue strongly.”  

 

That said, Blake Dawson’s experience with RSPT queries may reflect the particular mix of clients of that firm and it may be an overstatement to say that firms have been overwhelmed with client queries on how to prepare for the RSPT. David Ryan of Baker & McKenzie said that while his firm has been active in speaking with clients and contributing to the consultation process, he would not expect many queries relating to the practical impact of the tax until further details were known.

A recurring theme in the debate over the RSPT has been that ever-popular business mantra of certainty and a stable operating environment. It was a theme which Mallesons’ Robert Milliner touched on in March when he said that the uncertainty of the government’s plans in relation to key issues such as taxation, banking regulation and emissions trading could affect the decisions of boards to invest the capital which leads to M&A. “Business can handle one or two uncertain factors, but when you get several it becomes difficult to manage risk,” he told ALB.

 

David Ryan agrees that the uncertainty surrounding the RSPT is hurting business, but he says that it is difficult to generalise about the longer term impact, which may vary according to the location and nature of each resources project under consideration. He notes that the tax may ironically provoke a spike in M&A if discouraged players decide to sell-out.

 

Rio Tinto is at present reassessing all current and future Australian projects and Fortescue Metals has put the development of its Solomon and Western Hub iron ore projects on hold. The art of predicting whether such announcements are simply political bluster or a genuine portent of future investment trends belongs more in the realm of economic prognostication rather than lawyering or even legal reporting. One perhaps should exercise due caution in interpreting the public statements of mining executives on the subject. Like good lawyers, their role is to represent the interests of their company – for better or worse.