Andrew 'Twiggy' Forrest of Fortescue Metals Group.
Andrew 'Twiggy' Forrest of Fortescue Metals Group. Chris McCormack

Fortescue Metals Group argues mining tax 'unconstitutional'

THE Gillard Government's mining tax may be unconstitutional, lawyers for Andrew 'Twiggy' Forrest's Fortescue Metals Group told the High Court in Canberra on Wednesday.

In the first of three days of hearings, the full bench of the High Court heard the arguments put against the Minerals Resource Rent Tax in the legal challenge to the Commonwealth laws.

Fortescue counsel David Jackson QC spent much of the morning arguing the tax was unconstitutional on grounds it disadvantaged resource projects differently in different states.

Mr Jackson cited numerous precedents of where previous Commonwealth excises, levies and tariffs were overturned on a similar basis since Federation.

He argued the different levels that different state governments' set their mining royalties at meant projects in one state with higher royalties, and the mining tax on top of that charge, put those projects at a disadvantage, and thus, the state.

Mr Jackson challenged the validity of the tax on the ground it created such a disadvantage, and in doing so, contravened certain sections of the Constitution.

The mining tax is basically levied at 22.5% on profits recorded by companies extracting coal, iron ore and coal seam gas, which declare a total profit of more than $75 million.

But the structure of the tax has recently come under criticism, primarily due to provision of allowances made under the tax to give larger tax concessions on investments made before profits were declared, among other issues.

Justice Kenneth Hayne told the Court there was "nothing unduly simple" in the case, while other Justices questioned similar constitutional approaches to issues including income tax.

Both resource-heavy states Queensland and Western Australia have intervened in the case.

It is understood the Commonwealth will argue the tax is constitutionally sound on the basis is applied equally regardless of the location of the mineral resources being extracted.

The case continues.