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Glencore Poised for Tax Bill Surge

Glencore is facing a big increase in its tax bill following its $60 billion initial public offering after paying almost no corporate taxes on its trading business for years in spite of bumper profits, according to the banks underwriting its $60 billion listing.

The Glencore logo seen in front of the Swiss commodities giant's headquarters in Baar.
Sebastian Derungs | AFP | Getty Images
The Glencore logo seen in front of the Swiss commodities giant's headquarters in Baar.

The pre-IPO research, by banks including Citigroup , Credit Suisse and Morgan Stanley , sheds new light on the low taxes paid by the Swiss-based privately owned trading house which dominates global commodity markets.


“Under the current private structure, [the trading business of] Glencore has been largely tax free,” Liam Fitzpatrick, the lead analyst for Credit Suisse, wrote in a report.

Michael Rawlinson, lead analyst for Liberum Capital, another member of the IPO syndicate, added: “Income has been subject to a corporate tax rate close to zero due to the company’s historical share ownership structure.”

Glencore’s trading business made earnings before taxes and interest of $2.33 billion last year, the banks estimate. The company has not disclosed its net income from the trading business.
As a private Swiss-based company, the tax charges in the trading business are borne by its employees. The partners – about 485 employees – accumulate tax liabilities during their work career and pay them when they cash their shares at retirement as income tax.

Glencore, which is incorporated in the low-tax canton of Zug, pays corporate tax rates of between 20 and 30 per cent for its industrial activities, which include mines, oilfields and farming. It plans to sell a stake in the IPO worth up to $12 billion in late May.

The flotation will force Glencore to abandon its trading business tax-free status. UBS , one of the banks in the IPO syndicate, said the trader would see its overall tax rate jump to more than 20 percent this year, up from 10 percent in 2010.

UBS and other banks involved in the IPO said Glencore’s tax rate for its trading business would rise to about 10 percent from virtually zero before the flotation. The tax rate increase, on top of forecasts for much higher profits this year due to rising commodities prices, would push Glencore’s overall corporate tax payments to between $650 million and $1.1 billion this year, up from just $234 million in 2010, the banks said.

Glencore declined to ­comment.

Switzerland has attracted some of the world’s top commodities trading houses, which either have incorporated their businesses there or have set up large operations in Geneva and the towns of Zug, Baar and Luzern, on the back of a low-tax regime.

Besides Glencore, Vitol – the world’s largest oil trader –, Trafigura – the second largest metals – and Cargill – the largest agricultural trader – have large operations in Switzerland. Other traders with large operations in the Alpine country include Mercuria, Gunvor and Totsa, the trading arm of Total of France, US-based Archer Daniels Midland and Bunge and Hong Kong-based Noble Group.

Over the last year, Switzerland has reinforced its dominance in commodities as some top energy traders relocated teams from London to Geneva. The transfers, including by Trafigura and Vitol, threaten the UK capital’s leadership in physical crude and oil products, first established in the late 1980s, and come amid broader financial industry complaints about stiffer regulation, higher taxes and poor transport infrastructure in London.

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