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Australia’s Mining Tax Upheld by Nation’s Top Court

Australia’s mining tax was upheld as legal today by the country’s highest court in a defeat for Fortescue Metals Group Ltd. (FMG) and state governments that challenged its validity.

The High Court of Australia’s full bench unanimously dismissed the challenge, ruling the tax “did not discriminate between states and that the acts did not give preference to one state over another,” according to a summary of the ruling posted on the court’s website.

Fortescue, Australia’s third-biggest iron-ore producer, sued in the nation’s highest court in June 2012 to nullify the Minerals Resource Rent Tax, with the backing of the governments of Queensland and Western Australia, claiming the levy was discriminatory.

The tax on iron-ore and coal profits, introduced by former Prime Minister Julia Gillard’s government, will raise A$600 million ($538 million) in the current fiscal year, according to Treasury forecasts released last week. That’s down from the A$4 billion projected by Treasury in May 2011, as slumping commodity prices on weaker Chinese demand curb mining profits.

Opposition leader Tony Abbott has promised to repeal the tax should his coalition win the federal election set for Sept. 7, saying the revenue shortfall is an example of the government’s failure to manage the $1.5 trillion economy.

The mining tax, designed by Gillard and then Treasurer Wayne Swan, has drawn criticism from mining companies, state governments aligned with the Liberal-National opposition and billionaire Gina Rinehart, Asia’s richest woman.

Tax Structure

The structure of the MRRT offsets any reduction in state taxes, so if Western Australia cuts levies in a bid to spur development the federal tax rises and eliminates the difference. That inhibits states from offering tax breaks to companies agreeing to finance development in remote regions, Western Australia argued in a Dec. 21 filing to the high court.

The states’ argument is wrong because the recent practice has been to boost state royalties “to cash in on high ore prices in global markets,” the federal government said.

The case is between Fortescue Metals Group Ltd. and The Commonwealth of Australia. S163/2012. High Court of Australia (Sydney).

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To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net

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