It's been a bad day for lithium miners today, with the sector seeing red across the board.
Galaxy Resources Limited (ASX: GXY) fell by 2.62%.
Pilbara Minerals Ltd (ASX: PLS) went down by 1.63%.
Orocobre Limited (ASX: ORE) declined by 2.03%.
So, what happened?
According to an article in the AFR two of the biggest winners from the booming lithium resource trade are under investigation by the ATO.
The Australian Tax Office is apparently investigating the US company Albemarle and the Chinese company Tianqi because they allegedly may have underpaid for lithium from a local subsidiary.
Many readers will know, from all of the political commentary, that Australia has one of the highest corporate tax rates in the world. The higher the revenue and profit generated by the local subsidiary in Australia, the more earnings that could be 'lost' to tax to the ATO by a company. So, ideally, a foreign company would want Australian profit to be as low as legally possible.
Windfield Holdings is the business that owns the world's largest producer of lithium-rich spodumene rock. Tianqi owns 51% of Windfield and Albemarie owns 49%.
Of course, this doesn't directly affect Galaxy, Pilbara or Orocobre. However, anything affecting the lithium industry can cause jitters for shareholders. Particularly if the ATO is going to examine the industry more closely in the future.
Foolish takeaway
Australia is a resource-rich country, but it doesn't seem quite fair for companies, particularly foreign-based ones, to allegedly use clever accounting to avoid paying some tax. The lithium sector is already suffering from fears regarding oversupply in the near future, perhaps this weakness is a buying opportunity for investors who believe in the future of lithium.
