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27 October 2017

Marian Wilkinson
Reporter
ABC Four Corners Program

Cc Stuart Washington

Dear Ms. Wilkinson

Below is Glencores response to your correspondence received on 20 October 2017, containing a revised
set of questions from ABC Four Corners program in relation to Glencores operations in Australia.

We hope you use our answers in full to any relevant points raised in your program.

For the record, in the past ten years Glencore operations have paid more than $2 billion in corporate
income tax in Australia and more than $9 billion in royalties and other taxes.

Yours sincerely
Cassandra McCarthy
Head Corporate Affairs Australia
Glencore

PO Box R1543, Royal Exchange NSW 1225


Level 44, Gateway Building, 1 Macquarie Place, Sydney NSW 2000 Australia
T + 61 2 8247 6300 F + 61 2 9251 4740 www.glencore.com

Glencore Australia Holdings Pty Ltd (ABN 37 160 626 102)


QUESTIONS FOR GLENCORE REGARDING ITS AUSTRALIAN OPERATIONS

GLENCORE OPENING REMARKS

Australian Taxation Office engagement

Glencore has an open and transparent relationship with the Australian Taxation Office (ATO). This
includes ongoing engagement with ATO officers via regular meetings and telephone discussions as
part of Glencores voluntary participation in the Pre-lodgement compliance review (PCR) process
an ATO product designed to foster a culture of transparency and willing participation through early
engagement. As part of this arrangement, Glencore provides regular updates on developments in its
Australian business and significant details of both its historic and current tax positions and affairs.

In addition to the PCR process, Glencore separately advises the ATO real time on all major
transactions including acquisitions and disposals. Glencore also makes annual detailed presentations
to the ATO of its treasury and financing operations for its Australian operations.

Debt reduction plan / capital structure repositioning

As disclosed in various investor forums, Glencore plc has made an extensive effort to reposition its
capital structure and implement a global debt reduction plan over the last 2 years. This has been
driven by a significant divestment process (and other asset portfolio improvements) combined with
positive cashflow generation from both Marketing and Industrial asset operations.

In line with the global deleveraging strategy, the Australian Glencore group has repositioned its
balance sheet resulting in debt being reduced by ~US$4B since the levels discussed at the Senate
Committee. Again, this has been supported by strong cashflow generated by the Industrial assets in
Australia, significantly better commodity prices (mainly in 2017), and a number of material asset
sales.

Glencore continues to review its funding arrangements in Australia and is currently in the process of
further simplifying its debt structure. As indicated above, Glencore proactively engages with the
ATO on its tax affairs and provides detailed information on all of its cross border transactions to the
ATO. In line with this, Glencore will be providing a detailed briefing on its debt arrangements to the
ATO in November 2017. Glencore believes that the new financing arrangements would be in the
blue zone under the ATOs recently issued draft compliance guidelines.

Simplification project

In late 2014, Glencore undertook a simplification project to streamline its corporate ownership
structure in Australia.

The simplification involved establishing a single holding company for Glencores Australian
Industrial assets, separating the groups material foreign assets from the main structure and
reducing the number of Glencores Australian tax groups. Importantly, the simplification also
enabled the preparation of a primary set of consolidated financial statements (rather than more than
a dozen sets of financial statements), which improved the reporting transparency of the combined
Australian group, and facilitated a reduction in administration.

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A decision was made to streamline the structure following the significant growth the Glencore group
had experienced over recent years, particularly following the acquisition of Xstrata in May 2013
(which resulted in a combined Glencore / Xstrata structure that was complex). A simplified
corporate structure would also provide numerous group benefits by reducing functional
duplication, reducing administrative/compliance costs, leveraging organisational knowledge across
the business, streamlining and centralising reporting, finance and treasury functions, and reducing
levels of debt

It is noted that the simplification was a complex process that required a significant number of steps
to implement. Complexity in implementation should not be confused with the broader agenda of
simplification. Further, the simplification did not improve Glencores tax position and was not
implemented for tax purposes. In fact the combining of the Australian tax groups has resulted in a
material overall reduction in the tax depreciable value of its assets in Australia. The simplification
was exactly that, a process designed to streamline Glencores Industrial assets ownership structure.

Prior to implementation, details of the simplification project was shared with the ATO who
recognised the broader benefit arising from a regulator perspective given the reduced complexity
with respect to Glencores tax arrangements. Glencore has also continued to provide in depth
presentations to the ATO (including a step by step analysis) as part of PCR engagement.

As with any business, Glencore pays corporate tax on our taxable income not our revenue. Revenue
is not a reliable indicator of tax liability. The resources sector is cyclical, so when commodity prices
are high profitability improves, resulting in greater tax revenues for government. The opposite, of
course, is also true when prices are lower. Glencore expects to move in to a significant tax payable
position in respect of the 2017 financial year. Glencore has previously stated that inherited losses
from Xstratas failed Jubilee investment and the lack of profitability of the commodities operated at
that time contributed to these losses. Glencores operations in Australia are now profitable and hence
tax will be paid.

ABC QUESTIONS

A. TAX AUDITS

As noted above, Glencore engages proactively with the ATO with respect to all aspects of its
Australian operations including detailed discussions on its financing and marketing activities
with foreign related parties.

1. Is Glencore under audit by the Australian Tax Office over its marketing hub operations in
Singapore?

Glencore Response: As previously stated at the Senate Committee, Glencore closed the former
Xstrata Coal marketing office in Singapore in 2015. These arrangements were never subject to
audit by the ATO. There is no on-going dispute with the ATO with regard to the now closed
Singapore operations.

2. Is Glencore under audit by the Australian Tax Office over its use of procurement hubs?

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Glencore Response: No, Glencore does not operate any global procurement hubs and hence
there is no audit by the ATO.

3. Is Glencore under audit by the Australian Tax office over its use of debt financing?

Glencore Response: No Glencore is not under audit by the ATO with respect to its use of debt
financing.

4. Is Glencore under Tax Office audit over its use of Cross Currency Interest Rate Swaps
(CCIRS) on its inter-party related loans?

Glencore Response: No Glencore is not under audit by the ATO with respect to its use of cross
currency interest rate swaps.

5. Do any of these audits involve the role of Glencores Bermuda entities, including Glencore
Finance Bermuda?

Glencore Response: No there are no audits involving Glencores Bermudan entities.

6. Has Glencores advisors PWC and King & Wood Mallesons been served formal notices by the
ATO for the production of documents in relation to these audits?

Glencore Response: As noted above Glencore is not subject to any audit of its legacy coal
Singapore marketing operation or debt financing.

7. Glencore supplied figures to the Senate for related party transactions involving your
Australian based groups for 2013 and 2014. What are the 2015 and 2016 figures for: total sales
to related parties, total purchases from related parties; total interest paid to related parties?

2016 2015
USD $m USD $m
Total sales to related parties 5,797 7,456
Total purchases from related parties (1,179) (1,195)
Total interest paid to related parties (300) (344)

Glencore Response: As noted above, detailed information of all cross border related party
transactions is provided to the ATO regularly. Glencore operates a global trading business and
hence most commodities are marketed globally. Details of the terms and conditions of those sales
is provided to the ATO. All cross border transactions are undertaken on an arms length basis.
Further in our Coal business the vast majority of our operations are joint ventures and our joint
venture partners are equally satisfied that the terms of sales to Glencore related parties is arms
length.

The interest paid to related parties is forecast to decrease significantly in 2017 as debt levels are
reduced through asset sales and improved cash flows from Australian operations.

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B. GLENCORE XSTRATA MERGER AND SIMPLIFICATION PLAN

1. Following the merger of Glencore and Xstrata did Glencore book a goodwill impairment
because of the fall in commodity prices. How much of that impairment was booked over its
Australian operations?

Glencore Response: Yes, Glencore booked an impairment. The impairment was not allocated to
individual operations in any particular jurisdiction. None of the goodwill or goodwill
impairment was recognised in Australia.

2. Was one result of the simplification plan drawn up by PWC and Mallesons a consolidation
of the group tax losses in 2014 which were put into the main Australian tax group? How much
were these losses? Did any of these losses come from operations outside Australia?

Glencore Response: As noted above, the key purpose of the project was to simplify / streamline
Glencores Australian corporate holding and asset ownership structure following the acquisition
of Xstrata in May 2013.

In relation to Glencore corporate structures, the Glencore group in Australia had grown
predominantly through the acquisition of companies. This also meant that Glencore inherited
complex corporate structures from sellers. The simplification followed Glencore's acquisition of
Xstrata, to streamline our corporate-ownership structure and reduce the number of companies in
Australia. This simplification process allowed for a single set of financial statements to be
prepared for our Australian mining business from 2014 onwards.

As part of the simplification process, the Xstrata and Glencore tax groups were combined (where
possible). The combination of Australian tax losses ultimately restricted the ability of the losses
to be offset against taxable profits. Any Australian tax losses come from Australian operations.

3. At the end of 2014, Glencore companies in Australia, according to Glencores statements to the
Senate Tax Avoidance inquiry, earned $US12.76 billion but had an accounting loss before tax
of ($US1.35bn), resulting in corporate tax being paid of just $77 million. Was this loss in part
a result of the simplification plan?

Glencore Response: First a point of clarification, taxes are paid on taxable profits not revenue.
The US$12.76B was revenue. The loss for 2014 reflected challenging market conditions and
weaker commodity prices.

As stated in Glencores statement to the Senate inquiry, challenging marketing conditions and
inherited tax losses have contributed greatly to the groups recent tax position in Australia. The
financial performance of our mines in Australia, particularly coal and copper, reflected the
weaker pricing environment.

Prices for the other commodities Glencore mines in Australia such as copper and nickel fell
significantly from the highs they reached after the global financial crisis. Further, Glencore
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inherited tax losses from Xstrata's failed $3 billion Jubilee nickel acquisition in Western Australia,
where mining operations had subsequently proven to be uneconomic and production ceased.

The outcome of these circumstances is that the business did not pay tax due the lack of
profitability in the underlying operations.

4. As part of the simplification plan, did Glencore incorporate a number of companies in


Bermuda including Glencore International Investments Ltd, Glencore Investments Australia
Ltd, and others that have/had related party transactions with Glencore Finance Bermuda as
part of a debt re-financing. Were these transactions designed to help minimise tax in
Australia?

Glencore Response: No companies incorporated in Bermuda at the time of the simplification


had related party debt transactions with Glencore Finance Bermuda. The relevant companies
incorporated were Glencore International Investment Limited and the other was Glencore
Investment Holdings Australia Limited. For completeness, we note that the two Bermudan
incorporated entities, Glencore International Investment Limited and Glencore Investment
Holdings Australia Limited, are UK and Australia tax residents respectively and therefore
subject to tax in those countries.

5. In the Australian simplification plan, did total Glencore debt in Australia increase or
decrease?

Glencore Response: Glencore debt decreased during the simplification process. Further as noted
above, with improved profitability/cash flows and asset sales, Glencore has been able to continue
to reduce debt in Australia in line with its global debt reduction initiatives.

6. In June 2014, did Glencore International AG join Glencore Australia Holdings Pty Ltd as a co-
borrower on a $US8.7billion revolving syndicate facility with Glencore International as
guarantor? Was the re-financing of Glencores Australia operations then enacted through
Bermuda? If so why?

Glencore Response: Yes, Glencore International AG and Glencore Australia Holdings Pty Ltd
were co-borrowers under the revolving syndicate facility (RCF). Glencore plc acted as
guarantor. The facility was a 12 month global facility provided by a large number of third party
lenders (major financial institutions) to finance Glencores global operations. Glencore Australia
Holdings Pty Ltd, as the sole Australian borrower under the facility, directly drew down funds
under the facility to refinance existing Australian debt.

By way of background, as Glencores presence in Australia continued to grow the concept of a


regional treasury operation was conceived to allow for centralised treasury functions in the time
zone. Glencore Australia Holdings Pty Limited was established as this central treasury entity to
provide arms length funding to the Australian operations. Its financing role has expanded
further since acquisition of the Xstrata mining business. GAH has raised significant third party
debt including under the RCF and entered into bilateral arrangements to support Glencores
treasury requirements in Australia. This debt has replaced related party debt. All of GAHs
external borrowings are guaranteed by Glencore plc.

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In June 2014, the existing Glencore RCF was maturing and a new RCF was entered into. Glencore
Australia Holdings, as the sole Australian borrower under the facility, directly drew down funds
under the new facility which were used to repay borrowings under the maturing RCF and
replace other related party debt. This re-financing of the Australian operations was not enacted
through Bermuda.

7. Was Glencore Australias head of finance, Nick Talintyre a director of any Glencore Bermuda
entities involved in the re-financing of the Australian debt, including Glencore International
Investments Ltd, while he also sat as a director on the Australian companies?

Glencore Response: Nick Talintyre is a director of Glencore International Investments Ltd and is
also a director of a number of Australian companies. Glencore International Investments Ltd is
incorporated in Bermuda but is actually subject to tax in the UK (as it is a resident of the UK for
tax purposes).

Glencore International Investments Ltd is a group holding company that holds significant assets
across a number of asset classes and jurisdictions, including Australia. Glencore considers it is
appropriate that the composition of the board of Glencore International Investments Ltd reflects
the activities it carries out (as a holding company) and the jurisdictions in which it invests. This
is achieved by having directors from different parts of the group and with a variety of skill sets
sit on the board.

8. Was Mr Talintyre and a Sydney lawyer given power of attorney over several Bermuda
registered companies to enact the debt re-financing?

Glencore Response: This was merely a practicality to allow for the execution of the required
documents.

9. Mr Talintyre told the Senate Tax Avoidance inquiry in April 2015 on the companys debt
financing, All cross-border transactions we enter into are done at an arms-length basis. Was
the re-financing referred to above conducted in line with this evidence?

Glencore Response: Glencores approach to related party cross border transactions is to transact
on an arms-length basis. Each transaction is priced taking into account such factors as prevailing
financial market conditions at the time, tenure, credit risk, and currency. We have engaged
proactively with the ATO in this regard given transfer pricing is a complex area of the law and
subject to varying interpretations. The financing arrangements put in place in connection with
the simplification were carried out on this arms length basis.

Glencore is currently in the process of further simplifying its debt structure as debt levels are
reduced and will be providing a detailed briefing to the ATO in November 2017. Glencore
believes that its new financing would be in the blue zone indicating a low to moderate risk
under the ATOs recently issued practical compliance guideline (PCG 2017/D4)

10. Following the re-financing, by December 2014 Australias Glencore operations had a debt of
$US11.6 billion according to Mr Talintyres evidence to the Senate. What was the interest rate
charged to the Australian subsidiaries on this debt? What profit did Glencore parent company
make on these loans?
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Glencore Response: The average interest rate on this debt was 2.87% at the time of the Senate
enquiry in March 2015.

11. Is it the case that Glencores group cost of debt went down after the merger but the cost of
debt to the Australian subsidiaries went up?

Glencore Response: The cost of debt was materially consistent.

12. How many of the interparty loans connected with the simplification process were covered by
Cross Currency Interest Rate Swaps with Glencore entities in Bermuda? Was this for tax
purposes as well as foreign exchange hedging?

Glencore Response: As Glencores consolidated financial statements are presented in USD and
Australian tax is generally required to be calculated in AUD, material foreign exchange volatility
would have arisen had financial arrangements remained unhedged. This could give rise to either
taxable gains or losses. Exposure to material foreign exchange volatility presents an unacceptable
and speculative risk to the listed Glencore group given it would impact the reporting and results
of the group. As this would have the potential to impact shareholder value, this has been
managed by entering into hedging arrangements. Following the simplification of Glencores
Australian tax groups, the accounting and tax reporting in USD has been synchronised with full
disclosure to the ATO (via private binding ruling), such that hedging arrangements are no longer
required.

13. Why did Glencore issue large numbers of redeemable preference shares in Glencore Holdings
Pty Ltd to a Bermuda shareholder, Glencore International Investment Ltd? Was this done for
tax minimisation purposes?

Glencore Response: Glencore International Investment Limited is a UK resident taxpayer. It was


not issued with redeemable preference shares, it acquired all of the issued share capital (ordinary
and preference shares) of Glencore Holdings Pty Ltd as part of the simplification to streamline
the groups holding structure.

C. 2013 DEBT REFINANCING

We note the refinancing of Glencore debt in late 2013, addressing amounts owed by Glencore
Finance to Xstrata Finance (Dubai): The amounts to be refinanced were:

o $A1.4 billion in loan notes issued in September 2004.

o $US2.4 billion in the uncommitted revolving cash advance facility issued in July 2012.

1. Given these facilities do not appear to have been disclosed as a related party dealing in either
Glencores or Xstratas 2012 annual report, what does that say about Glencores transparency
in relation to its related party dealings?

Glencore Response: In 2012, Glencore Finance was named Xstrata Finance and was part of the
Xstrata group (along with Xstrata Finance (Dubai)). Under accounting standards, transactions
between entities within an accounting consolidated group (in the case Xstrata plc) are required to
be eliminated from financial reporting. This company was not part of the Glencore group at that

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time and hence there was nothing to disclose by Glencore. There were no financing
arrangements between the Glencore plc group and the Xstrata plc group prior to Glencore
acquiring Xstrata in May 2013.

Care should be taken not to confuse accounting disclosures of related party transactions, with
cross border transactions between related parties. All cross border related party transactions are
disclosed to the ATO as part of the annual tax return process.

2. Given the 2012 Glencore annual report shows only $1 million in interest expenses paid on
related party loans, does it mean the facilities with Xstrata mentioned above were struck on
uncommercial terms?

Glencore Response: Refer to response to Question 1.

3. Was the net effect of this transaction to shift debts of circa $3.7 billion into the Australian
operations?

Glencore Response: No, in December 2013 a transaction was undertaken to refinance legacy
Xstrata financing arrangements with Glencore funding arrangements. No additional debt was
introduced into the Australian tax group as a result of this transaction.

4. Were the terms of the perpetual notes - with no obligation for the issuer to repay, and an
ability to defer interest payments by mutual agreement - struck on commercial terms?

Glencore Response: Glencore funds its operations through a broad range of financial
arrangements in order to manage its capital profile, this includes external and group financing
through instruments which include perpetual notes. Perpetual notes are a commercial source of
funding used in capital markets.

5. Why did Glencore use related party cross-currency interest rate swaps within this transaction?

Glencore Response: Refer to response to Question 12 above.

6. Was the purpose of this transaction - a related party deal with a high degree of complexity
through Bermuda - a tax-driven outcome designed to increase financing costs for the
Australian operations and reduce profit in Australia?

Glencore Response: Refer response at question 3 and question 12 above. There was no increase
in total debt in Glencores Australians operations nor increase in financing costs.

7. Was the purpose of this transaction - increasing debts owed by Glencore Australia by $3.7
billion - a tax driven outcome designed to increase interest payments and reduce profit in
Australia?

Glencore Response: Refer response to question 3 above. There was no increase in total debt in
Glencores Australians operations nor increase in financing costs.

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D. GOVERNANCE

1. Did Glencore request directors of its offshore subsidiaries in Bermuda to backdate


documents, leave documents undated and did Glencore create minutes to be signed by
company officers who had not attended meetings or drafted the minutes?

Glencore response: Glencore is unable to comment on this question without more detail or
access to the underlying documents being reviewed by the ICIJ that form the basis of this
question.

2. In the case of Swissmarine, did Glencore withhold information from shareholders about its
true ownership of the company?

Glencore response: For commercial reasons, Glencores investment in SwissMarine Corporation


Ltd. (SMC) was not widely disclosed. Where required, Glencore has disclosed its beneficial
ownership in SMC, such as to banks or tax authorities. SMC is not a subsidiary of Glencore.
SMCs profit attributable to Glencore is taken into account in Glencores consolidated financial
statements in accordance with their applicable accounting standards. Glencores disclosure of
interests in its IPO prospectus was limited to a short list of interests in quoted entities or of
significant undertakings. SwissMarine is not a significant investment for Glencore.

3. Were Glencore directors aware of any sanctions breaches by Swissmarine vessels trading with
Iran?

Glencore response: Glencore is unable to comment on this question without more detail or
access to the underlying documents being reviewed by the ICIJ that form the basis of this
question.

ENDS

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Glencores response to industrial action at its Oaky Creek North coal mine

Glencore has engaged in good faith negotiations at Oaky North for over two and a half years since April
2015, including some 23 negotiation meetings to finalise an enterprise agreement (EA). Our employees
had the opportunity to vote on a new modern, flexible and streamlined EA that would have expedited
their return to work but chose not to.

The decision to take response action in the form of an employee lockout was not taken lightly. It is
important to remember that Glencore did not initiate this industrial dispute and our decision to take
response action as permitted under the Fair Work Act was made after 10 weeks of industrial action
organised and directed by the CFMEU had already occurred. It has been taken to advance an agreement
that is necessary to protect our business.

Glencore wants to resolve this issue, and in our most recent meeting with the CFMEU tabled a revised
EA offering workers earning up to $180,000 a year an initial increase of 2%, followed by similar increases
over the next three years. Effectively, this provides an 8.24% compounded increase in wages after the
final year.

In relation to worker accommodation Glencore has proposed a modest increase in rent to $30/week for a
three or four bedroom home. We are also proposing an increase in rent to $48/week for single persons
accommodation. These accommodation charges have not changed in 23 years and, to offset the increase,
we are offering salary sacrifice on these payments.

Since negotiations for a new Enterprise Agreement began, Glencore has agreed to a number of changes
as requested by the CFMEU, in relation to:
Remuneration
Representation
Personal Leave
Anti-Discrimination Clause
Accommodation costs in Tieri
Overtime payment for a delayed crib / meal break
Bonus clause review clause

Despite this, the CFMEU continues to make inaccurate comments about our new proposed EA,
continues to display disgusting behaviour on the picket line and is pushing a campaign of
misinformation which is a disservice to its members and our employees.

The outcome of the latest EA ballot at Oaky North (conducted during the week commencing 23 October)
was not unexpected, given the ongoing campaign of misleading and incorrect information from the
CFMEU. It is disappointing, however, that an offer containing numerous concessions requested by the
union in addition to the cumulative wage increase of 8.24 per cent was not considered sufficient to
expedite a return to work for our employees.

Oaky North needs a new EA that can support a work environment where our management and
employees have an open, constructive and collaborative relationship and a safe, efficient workplace.
This is essential to achieve a long term future for Oaky North.

ENDS

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