07 August 2013
The High Court of Australia has this morning upheld the Federal Government's Minerals Resource Rent Tax (MRRT), ruling that the arguments forwarded by the plaintiff (Fortescue Metals Group (FMG)) were insufficient to overturn the controversial tax (Fortescue Metals Group Limited v The Commonwealth  HCA 34).
The judgment is a win for the Government and means that the MRRT will remain in place, subject (of course) to any action to repeal it taken by a potential Coalition Government following 7 September's Federal election.
The important points
The decision means that the tax remains for coal and iron ore miners with mining profits greater than $75 million in the year.
Even if the Coalition is elected on 7 September and decides to proceed with its promised repeal of the MRRT, amending legislation still needs to be prepared and passed by both houses of Parliament, which is likely to take some time.
Accordingly, for the foreseeable future (and in all likelihood for the third and fourth instalment quarters of the 2013-14 year at least) miners should calculate their projected MRRT liability based on existing rules.
FMG had argued that the tax:
Essentially, FMG argued that because State royalties were allowances able to be deducted against MRRT revenue, there was discrimination between the States because the amount of MRRT payable will vary depending on the amount of royalty payable to the State in which the miner was located.
Similarly, this meant that States could not differentiate themselves by lowering or raising royalties (because in real terms, the varying MRRT would effectively cancel out any difference).
The Attorneys-General of Western Australia and Queensland intervened in support of the plaintiffs, reiterating the arguments made by the original plaintiffs and contending that the MRRT curtailed State sovereignty contrary to the "Melbourne Corporation" principle.
Submissions in the hearing followed those in the filed documents, supplemented by arguments relating to section 51(ii) and the "Melbourne Corporation" principle by the Solicitors-General of Queensland and Western Australia respectively.
On behalf of the Government the Commonwealth Solicitor-General contended that it was the royalties (and not the MRRT Act) which differentiated between the States, royalties were but one "allowance" leading to variance in the amount of MRRT collected (and should not be considered in isolation) and that the "discrimination" complained of was not of the type prohibited by the Constitution, as described by the High Court in Conroy.
The Court unanimously held (in four separate judgments – Chief Justice French, Justices Hayne, Bell and Keane, Justice Crennan and Justice Kiefel) that the MRRT legislation was not invalidated by the Constitution, because:
Where to from here?
It is noted that the Court's decision was not entirely unexpected, with many Constitutional and tax law experts considering that the challenge had, at best, a moderate chance of success.
As the ultimate court of appeal in Australia, the High Court's decision has meant that the MRRT may now only be removed by amending legislation passed by both houses of Parliament. The constitution of the Senate following the election may therefore be of particular importance to interested parties, as the Coalition has indicated that if elected it intends to repeal the legislation.
Notably for petroleum producers however, in April the Coalition indicated that even if elected it intends to retain the extension of the Petroleum Resource Rent Tax to onshore projects.