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Lithium giants Albemarle, Tianqi in Australian Tax Office price review

The Australian Tax Office, or ATO, is reviewing the pricing of related party sales to Chengdu Tianqi Industry Group Co. Ltd. and its partner Albemarle Corp. of lithium product from the Greenbushes mine in Western Australia in 2015 and 2016 which could result in them paying more tax for those years, though it is not expected to impact plant construction underway in Kwinana.

Windfield Holdings Pty. Ltd., which is 51% owned by Tianqi and 49% by Albermarle, stated in a March 7 filing to the Australian Securities and Investments Commission that it had sought the ATO's approval for an "advanced pricing arrangement," or APA, for sales to the two joint owners in 2017, this year and 2019.

The issue revolves around transfer pricing, as Talison Lithium Ltd., a unit of Windfield, needs to sell at an arm's length price to its two shareholders, which they did at a price they believed was market competitive and transparent.

"Whilst management believes the pricing proposed in the advanced pricing arrangement and the pricing methods adopted in the 2015 and 2016 years are appropriate and therefore reasonable prices have been applied to related party sales, there is the possibility that the ATO forms a different view which could result in the company having a liability for additional income tax," Windfield's statement to ASIC, seen by S&P Global Market Intelligence, said.

"All transactions with related parties are priced on an arm's length basis and are to be settled within 60 days of the date of the transaction."

A source close to the matter told S&P Global Market Intelligence that Talison has been in negotiations with the ATO for a number of years on agreeing on an APA as it was a condition of the Foreign Investment Review Board approval when Talison was first taken over in 2012, but those negotiations are taking longer than expected.

The negotiations are expected to be wrapped up later this year.

While the issue with the ATO is one for Windfield Holdings' Talison, Tianqi Lithium Australia Pty. Ltd. general manager Phil Thick said that even a negative outcome from the ATO would not impact his company's construction in Kwinana, south of Perth, which is progressing "full steam ahead".

"That has no impact on our project at all," Thick told S&P Global Market Intelligence regarding the ATO review.

Government enthusiasm

Western Australia's mines and petroleum minister Bill Johnston expressed bullishness for Tianqi's expansion plans when pushing for a cooperative research center and downstream processing hub in the state.

He told a battery minerals conference March 14 in Perth that it was "quite possible" that Tianqi would build a third plant to add to the two under construction.

He said North Carolina-headquartered Albermarle has also moved closer to an investment decision on the Greenbushes mine, building a facility in Kemerton, and that "the indications are that if they make that decision they will then move to expand that facility".

Johnston added that BHP Billiton Nickel West Pty Ltd.'s facility was also looking at moving down the chemical and battery materials chain.

However, Thick said there were currently no plans for a third line at this stage. "We're not committed to any third stage at this point in time," he said. "We have the potential and the land to do that, but we're not discussing that at this stage." He said the second line — stage two — was already well under construction, with "significant progress" made there already.

"We're well on track with that expansion even before the first stage is complete," he said. Stage two will be online by the end of 2019, about 12 months after stage one.

"That's all our focus is on at the moment. We're not talking about stage three internally," Thick said.