Fortescue Metals Group says it can beat the federal government's mining tax in a legal challenge that will thrash out the century-old states versus Commonwealth rights debate.
Fortescue has launched its legal battle against the controversial Minerals Resource Rent Tax (MRRT), just days before it comes into effect on July 1.
While the move has won the in-principle support of the West Australian government, Premier Colin Barnett has decided against joining the legal action.
The High Court is expected to be hear the matter later this year.
Fortescue legal chief Peter Huston said the MRRT contravened the constitutional right of the states to deal with their own assets and property in a manner that they saw fit.
The iron ore miner will argue the constitution prohibits taxes that discriminate against some states; curtails the states' ability to determine what royalties will be imposed, and that the MRRT restricts their ability to aid mining.
Fortescue rejects the suggestion it is trying to avoid paying taxes that will share the benefits of the mining boom.
"This is clearly not about trying to reduce our tax liability, this is about tackling a law we fundamentally believe is against the constitution," Fortescue director of strategy Julian Tapp told reporters.
"To encourage mining in a particular area or to help with a particular start-up, a state may impose a royalty of zero per cent freedom from royalties.
"That won't encourage mining, all that happens is the miner will pay more MRRT."
The mining tax is levied at 30 per cent on the super profits of iron ore and coal companies.
But it is a watered-down version of the original Resource Super Profits Tax that helped bring down the Rudd government.
Fellow iron ore miners Cliff Resources, Atlas Iron and BC Iron, and Wesfarmers have said they don't expect to pay much or any of the tax for several years.
Despite this, Fortescue director of development Peter Meurs said the miner was launching the challenge as a good corporate citizen, with the eventual costs of complying with the tax to dwarf its legal costs.
Acting Prime Minister Wayne Swan said he was still determined to deliver the government's mining tax on July 1.
He is banking on collecting as much as $13.4 billion from the MRRT in its first four years to fund government programs.
Business tax experts and Fortescue's chairman, Australia's richest man Andrew Forrest argue it will be far less.
The West Australian premier says his government will not help bankroll Fortescue's case, but will seek leave to intervene before the High Court to argue its belief that minerals found across WA are owned by the state.
"The state government is not in any way funding FMG's challenge, we're not providing legal advice to them, we're simply and quite properly appearing as a state government to protect the interests of all West Australians," Mr Barnett said.
However Mr Barnett conceded the Commonwealth also had a case for the tariff.
Constitutional experts have been reluctant to pick a winner.
Greg Craven, vice-chancellor of Australian Catholic University, did say that discriminating between the states contravened the constitution and if Fortescue could prove that then the tax would be invalid.
Opposition Leader Tony Abbott said he remained committed to dumping the tax if the coalition wins the next election.
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