Holmes Institute: HI5015 BASF Legal Aspects of International Business

This report examines the legal aspects of BASF, a multinational chemical company, operating in Australia. It delves into the legislative frameworks impacting BASF, including intellectual property laws, business and environmental regulations, and taxation policies. The report highlights the Foreign Investment Review Board's role and specific legal actions related to patent infringements. Furthermore, it analyzes the impact of various treaties, conventions, and agreements on BASF's products and services, such as the Rotterdam Convention, the Multilateral Convention, Australia's Tax Treaty with Germany, the Chemical Weapons Convention, and the Convention on Biodiversity. The report underscores BASF's compliance requirements, particularly regarding environmental protection and chemical regulations, and its role in upholding international standards and promoting sustainable practices.

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LEGAL ASPECTS OF INTERNATIONAL BUSINESS AND INTERPRETATION
Student`s Name
Course Name
Professor`s Name
Institutional Affiliation
20th April, 2019

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Executive Summary
This paper is based on research conducted in a bid to highlight the aspects and
relationship of international businesses. It will focus on outlining and discussing the
relevant legislative frameworks and conventions applicable to certain entities in
Australia specifically BASF. Any subsidiary company based in another country is face
with the hard reality of having to comply with both international laws like a global
taxation system and domestic laws from the specified country. As such, BASF a
chemical company operating as a subsidiary in Australia faces domestic laws covering
various issues such as , environment, taxation, chemical weapon regulations.
Furthermore, the international treaties and convention also play a big role in regulating
its activities. These laws and conventions keep the company in check and maintain
good relations with the international market, for instance the convention on biodiversity
advocates for protection ecosystems leading to a safer future. Being the largest
chemical company most in the world BASF has a role to play in the safeguarding of
laws and regulations.
Key Words: BASF, International laws, legislative frameworks, Environment.

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Table of Contents
Executive Summary...........................................................................................................2
Introduction........................................................................................................................5
An overview....................................................................................................................5
Legislative Frameworks Affecting BASF in Australia........................................................5
Intellectual Property Laws..............................................................................................5
Business and Environmental Laws................................................................................6
Taxation Policies............................................................................................................7
Treaties, Conventions and Agreements that have impacted the products and services of
BASF in Australia...............................................................................................................7
The Rotterdam convention.............................................................................................7
The Multilateral Convention............................................................................................8
Australia`s Tax Treaty with Germany.............................................................................8
Chemical Weapons Convention.....................................................................................9
Convention on Biodiversity.............................................................................................9
Conclusion.......................................................................................................................10
Recommendation.............................................................................................................10
References.......................................................................................................................11
Legislation....................................................................................................................11
Others...........................................................................................................................11

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Introduction
An overview
BASF, established on 6 April 1865 is the largest chemical company in the world.
Its headquarters are in Ludwigshafen, Germany, but it boasts of subsidiaries in 80
different countries including Australia. The company has been responsible for
phenomenal feats ever since its establishment, setting up gasworks which would later
be used for it`s by product tar to produce soda and acids. Currently it produces a large
variety of chemicals like solvents, amines, glues, resins, petrochemicals and inorganic
chemicals attracting a large base of pharmaceutical and automotive industries.
(SuccessStory, 2019). The company’s profit generation has skyrocketed ever since it
abandoned consumer products and decided to focus on resource efficient products and
efforts curbing environmental pollution while upholding social responsibility. Globally the
company has a staff of about 122,420 employees and 450 in Australia. (Basf.com,
2019)
Legislative Frameworks Affecting BASF in Australia
BASF, being a German company, requires approval by the Foreign Investment Review
Board which is a non-statutory body tasked with examining investment proposals on
investments in Australia. The Board then makes recommendations to the Treasury on
the suitability for approval of the proposals, in line with the Foreign Investment Policy as
well as the compliance of the Foreign Acquisitions and Takeovers Act 1975(Cth)
(Pwc.com.au. 2018, p 11).
Intellectual Property Laws
Intellectual property laws in Australia are designed to protect businesses that develop
original content while at the same time encouraging innovation. In Australia, the law
provides for patent protection administered by the Patent Office of IP Australia
(Australian Trade Commission, 2013)

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In July 2016, BASF took legal action against PCT Holdings Pty Ltd for infringement of
its patent which covered gel bait with fipronil as the active ingredient. This resulted in a
declaration by PCT Holdings that for the duration of BASF’s patent, it will not be selling
its product, called Covert Gold Cockroach Gel Bait, for the duration of BASF’s patent.
Standard patents in Australia usually last about 20years. (Basf.com, 2019)
This would not be the first time that BASF has had to take legal action based on
Australian patent laws. In the year 2013, BASF settled court proceedings with the trade
Australia Pty Ltd and settled out of court with Environmental Technologies Pty Ltd in the
year 2014, with both cases having been based on the infringement of BASF’s patents
covering the processes of manufacturing fipronil. The year 2015 also saw another
company, Sherwood Chemicals Australasia Pty Ltd acknowledging that they infringed
upon BASF’s patents on the use of fipronil. (Basf.com, 2019)
Business and Environmental Laws
It is an offence for any person to take an action that is likely to have a substantial effect
on matters prohibited by law, unless they have the approval of the Australian
Environment Minister (The Environment Protection and Biodiversity Conservation Act,
1999).
At BASF, environmental conservation is an intrinsic value of the company. Safety,
health and environmental protection are given priority over economic considerations.
BASF, as a multinational company operating in Australia has had to comply with
environmental conservation laws. The use of air, water and land for any industrial
purposes may only be done within the framework of approvals granted by the relevant
authorities. The disposal of waste in BASF is also guided by legal requirements even
when there is the use of third party services.
In Australia, the main statute that deals with competition law is the Federal Competition
and Consumer Act 2010 (Competition and Consumer Act). Part IV of the Competition
and Consumer Act is intended to preserve and promote competition in the marketplace
by prohibiting or regulating anti-competitive agreements and conduct from persons. The

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Australian Competition and Consumer Commission (ACCC) is the body responsible for
the enforcement of the Competition and Consumer Act 2010.
The ACCC, if it deems there to have been a contravention of Part IV of the Competition
and Consumer Act 2010, has the power to bring a legal action in the Federal Court of
Australia seeking penalties and other remedies against the primary offender and other
provisions involved in the contravention. Cartel conduct is also prohibited by law in
Australia, since 2009.
Taxation Policies
In Australia, resident companies are subject to Australian income tax on worldwide
income. Non-resident companies are usually subject to income tax on revenue sourced
in Australia only. In cases where a company has residency in a state that has a double
taxation agreement with Australia, the company is only obligated to pay taxes on profits
directly acquired in Australia through permanent establishment. A federal tax rate of
30% applies to all companies in Australia, except for relatively small businesses whose
rate is reduced to 27.5% which is not fixed but varies from year to year. (Walpole, 2018)
Australia and Germany have a Double Tax Agreement which was signed in 2015 which
has been in effect in Germany since July 2016, replacing the Double Taxation
Agreement of 1972, between the two countries. (Castillo-Murciego and Lopez-Laborda,
2018)
BASF is highly affected by this arrangement between the two states, seeing as it has its
permanent headquarters in Ludwigshafen in Germany, while also maintaining
permanent establishment in Australia. This situation means that BASF has to pay
income taxes in Australia in accordance with Australian law, on profits directly derived
from its permanent residency in Australia, while also paying income tax in Germany on
global profits.

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Treaties, Conventions and Agreements that have impacted the products and
services of BASF in Australia
The Rotterdam convention
The treaty which was tabled in the year 2003 consists of parties of international trade
including Australia. The main purpose of the treaty is to ensure that all the parties are
able to share the responsibility of the production of their hardazous chemicals so at to
promote both a safe environment and protect human health. The treaty also ensures a
healthy flow of information among the international parties on the appropriate actions to
take in protecting human health and the environment. This eventually transcends to the
sharing of information about any restricted chemical. It has enabled Australia to take a
front seat not only in the fight for global environmental preservation bur also chemical
management. The treaty also outlines any that any company exporting pesticides or
industrial chemicals covered have to obtain authorization from NICNAS (Ogunseitan,
2015)
This treaty has had an enormous effect on the products supplied by BASF. The
company has had to make sure that their products do not affect the environment or
cause any unnecessary harm to human health. One of the products is their exhaust
catalyst which is aimed towards making sure the car emissions are cleaned to make the
air cleaner (Mosher, 2016)
The Multilateral Convention
The convention entered into force in Australia on 1 January 2009. Its main objective is
to ensure there is efficient dual taxation of resident companies between any two
countries. It is based on transparent taxation through partnership and trust among the
countries that have jumped on the bandwagon by signing to the convention. Article 6 of
the treaty clarifies and discerns out any attempts to promote tax evasion or reduce
taxation at the same promoting the idea of economic development between countries.
The treaty also outlines the need of incorporating trust between these partners so as to
come up with a single resident company that will be taxed under the domestic laws.
This treaty seeks to improve the Double taxation agreement that ensures BASF pays an
income tax to Australia for basing a permanent residency while also been subjected to

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taxation on its global profits. This treaty also a holding period which requires all the
shares to be held for a period of 365 days before being subjected to the reduced
taxation rates. In this case Australia and Germany will have an agreement on the
taxation of BASF products and services, which would be eligible for a shared dividend
agreement (Treasury.gov.au, 2019)
Australia`s Tax Treaty with Germany
This treaty mainly reflects on a Base Erosion and Profit Sharing (BEPS). It outlines the
necessary tax regulations that will affect deals involving any German companies. The
treaty defines a permanent establishment clause that will require all the German
companies including BASF to be taxed. German banks will also be able to lend
Australian borrowers without interest withholding tax being a requirement. The parent
BASF in Germany will also be able to receive dividends from the BASF Company in
Australia. The royalty payments on BASF made between Germany and Australia have
been reduced to 5% as per the implementation of the treaty. This has had fundamental
effects on the services offered by BASF as it has reduced the prices of the chemical
products in Australia while also applying an efficient taxing system void of any
irregularities (Maurer, 2017)
A switch over clause is included in the treaty to ensure the elimination of double
taxation. This is done whereby Australia eliminates double taxation of income which
may be taxed in Germany by exempting it from Australian Taxation. This clause applies
to different categories including federal taxation on companies like BASF (Braun, 2014)
Chemical Weapons Convention
This is the only international treaty focused on banning any weapons of mass
destruction. It emphasizes on the eradication of any chemical weapons. The treaty
thereby requires countries to declare any facilities or companies producing chemicals
that could be used for the production of chemical weapons. These companies and
facilities are subjected to a routine inspection by the Organization for the Prohibition of
Chemical Weapons (OPCW).Australia ratified the convention in May 1994. As the
largest chemical company in the world, it is inevitable for BASF to face the strong arm of
this treaty. (Tucker, 2012)

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The Scientific Advisory Board is an OPCW subsidiary body that offers advices in
science and technology to the convention. BASF is required to have a representative in
all its subsidiaries. This representative will in turn convey a formal representation to the
Chemicals and weapons Convention on the routine inspections. The Australian BASF
has so far maintained a clean sheet in producing product and services that are no prone
to any production of chemical weapons (Australian Government, 2019)
Convention on Biodiversity
This is an international convention geared towards the preservation of ecosystems, with
a main goal that advocates for a sustainable future. The convention covers ecosystems,
species, biotechnology and genetic resources.
BASF has been a major contributor to this convention by promoting an efficient
preservation and utilization of natural resources. The company is able to always
optimize its production processes to ensure conservation of resources. Protection of the
climate and emissions of clean air using the exhaust catalyst. The company has also
taken outstanding steps in promoting educational programs that raise awareness on the
protection of the environment. All these steps to promote biodiversity and adhere to the
goals of the convention have made BASF a strong advocate for environmental
protection, along with having good applicability of social responsibility in a company
(Prip, 2018).
Conclusion
BASF has had a successive run in Australia so far, recording profits each year. This can
be attributed to the legislative frameworks and treaties oiling the wheel to make sure
everything runs smoothly. The double taxation system, that thanks to the Australian –
Germany treaty has been made efficient to close any loop holes that existed like tax
evasion and double taxation. The Environmental in Australia have also pushed BASF to
make their products cleaner and safer to the environment. These laws along with the
Convention on Biodiversity are striving to protect the environment.

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Recommendation
Despite having few cases on the infringement of domestic and international laws, BASF
still has a long way to go before securing its place as a global beneficial element. This
does not mean that the company needs to produce more products, but rather tighten
the note on environmental protection. This can be done through partnership with other
Australian organizations.

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References
Legislation
Competition and Consumer Act 2010 (CCA)
Foreign Acquisitions and Takeovers Act 1975(Cth)
The Environment Protection and Biodiversity Conservation Act, 1999 (Cth)
Others
Australian Government: Department of foreign Affairs and Trade.2019. The Chemical
Weapons convention. Available at
https://dfat.gov.au/international-relations/security/non-proliferation-disarmament-arms-
control/chemical-weaposn/cws/pages/australis-national authority-for-the-chemical
weapons convention.[Accessed 21st April,2019].
Australian Trade Commission.2012.Australian Intellectual Property Laws. Available at
https://www.austrade.gobv.au/internatyional/invest/Guide-to-investing/Running-a-
business/understanding-Australian-business-regulation/Australian-Intellectual-Property-
Laws[Accessed 21st April, 2019)
Basf.com.2019.BASF takes action in another finpronil patent infringement case in
Australia .Available at
https://www.basf.com/hk/en/media/news-releases/anz/2016/07/finpronil-patent-
infringement-australia.html[Accessed 23rd April, 2019].
Braun, J. Zagler, M.2014.An Economic Perspective on Double Tax Treaties within
Developing Countries. World Tax Journal .pp.242-282.
Castillo-Murciego, A.Lopez-Laborda, J.2018.The effect of double taxation treaties and
territorial tax systems on foreign direct investment. The open Access, open Assessment
E- journal.pp. 1-31.