Hight Court told MRRT unconstitutional

Fortescue Metals Group will appear before the High Court to challenge the government's mining tax. Source: AAP

A LEGAL challenge against the federal government's mineral resources rent tax (MRRT) has started in the High Court with lawyers for miner Andrew "Twiggy" Forrest arguing the controversial impost breaches the constitution.

Mr Forrest wasn't present in court on Wednesday for the start of the case that pits his Fortescue Metals Group against the commonwealth.

Governments in the big mining states of Queensland and Western Australia have intervened in the hearing.

The full court of the High Court, sitting in Canberra, has set down three days to hear the case, which will involve complex legal argument.

At one point, Justice Kenneth Hayne observed: "Nothing is unduly simple in this."

Opening the case, counsel for Fortescue David Jackson QC said the company did not dispute the commonwealth's power to raise tax.

But in this case, the validity of the MRRT legislation was being challenged on grounds that it contravened a provision of the constitution which stipulates that tax must be applied equally to all states.

"It discriminates against the states in that it gives rise to a preference to some states," Mr Jackson said, arguing the MRRT was levied differently in each state because of the variation in mining royalties which are offset against tax liabilities.

The commonwealth will argue the tax is constitutional because it is imposed at a uniform rate regardless of a mine's location.

Royalties were merely one type of allowance for which a miner can calculate deductions in calculating MRRT liability.

The MRRT is levied at the rate of 22.5 per cent on total profits over $75 million derived from extraction of iron ore, coal and coal-seam gas.

Mr Forrest vigorously opposed the MRRT from the outset and foreshadowed a legal challenge last year.

That was long before the government revealed how little the MRRT actually raised in its first six months of operation.

To the end of December 2012, the tax garnered $126 million from miners against a full-year forecast of $2.0 billion.

Fortescue expects to pay no MRRT this year.

The case is being heard by six of the court's seven judges after Justice Stephen Gageler excused himself on the grounds he provided legal advice to the commonwealth on the MRRT while serving as solicitor-general.

The case is continuing.

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