Governments understandably seek to gain the maximum benefit from their natural resources, and if mining companies wish to retain their ‘license to operate’, they should be seen to be making a fair contribution in terms of tax payments.
In addition, they want to be more confident about the future tax burden to better plan and forecast.
In addition to corporation tax, organizations face resource taxes, such as mining and government royalties, value-added tax (VAT) and employee taxes.
A number of countries have raised royalty taxes on relatively short notice and one hedge against such measures is to enter into a fiscal stability agreement. These agreements can apply to the extractors’ existing or anticipated mineral resource rights, and offer guaranteed protection against increases in the mining royalty rate and other tax rates and settings.
Transfer pricing is another potentially volatile issue, with national revenue authorities concerned that businesses may be trying to shift profits to lower-tax countries, via artificially low prices for inter-company transactions or favorable interest rates for inter-company debt.
Advance pricing agreement (APA)
By settling an APA with a tax authority, prices and interest rates are set in stone for a fixed period, avoiding double taxation and the hassle and cost of litigation, and helping maintain a better relationship between the two parties.
Towards greater transparency
Tax is increasingly coming out of the shadows, as CEOs and Board members recognize that being able to demonstrate that a fair amount of tax is being paid is preferable to the damage caused by negative publicity from unexplained low levels of tax payments. Although there is no single, global tax reporting standard, a number of compulsory and voluntary initiatives have been introduced in recent years, in a bid to increase visibility over tax payments.
The US Dodd-Frank Act obliges any Securities and Exchange Commission (SEC) listed mining companies to disclose taxes, royalties, fees, production entitlements, bonuses and other payments to governments on a country-by-country and project-by-project basis.
Many global mining companies are taking a proactive approach by preparing and publishing ‘Taxes Paid’ reports to demonstrate their contribution to the countries in which they operate.
Learn more about a taxation strategy and key taxation issues (PDF 1.7 MB)