Raising tax revenue is especially important for developing countries. Strong tax systems are central to financing development, and there is increased recognition of the importance of external support in building those systems.
While real progress has been made on increasing tax revenues in low income countries over the past two decades, in many countries revenue remains well below the levels needed to achieve the Sustainable Development Goals and secure robust and stable growth.
Like other sectors of the economy, there are tax base erosion risks in the mining sector that can hinder domestic resource mobilisation (DRM), particularly from the operations of multinational enterprises (MNEs).
Pricing Minerals Sold in an Intermediate Form
Profit shifting via the pricing of mineral products in transactions between related parties is of particular concern for many countries. For developing countries, profit shifting risks are elevated where revenue authorities are still building their sector specific and transfer pricing expertise.
As a response, the OECD led the development of material on mineral product pricing, published by the Platform for Collaboration on Tax in 2017 as a supplement to the Toolkit Addressing Difficulties in Accessing Comparables Data for Transfer Pricing Analyses.
Training on this toolkit is also available under the Global Relations Programme.
Co-operation with the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF)
The OECD and IGF are working together to address tax base erosion and profit shifting (BEPS) in the mining sector. Our programme provides sector-specific guidance on BEPS challenges and capacity building support to developing country governments. Training, legal and policy advisory services, as well as hands-on tax audit assistance, can all be accessed on request. Our goal is to help countries capture a fair share of the fiscal benefits from their natural resources.
Significant work has been done, including the release of three practice notes:
Limiting the Impact of Excessive Interest Deductions on Mining Revenue*
Tax systems that provide income tax deductions for interest without making any similar provision for equity create an incentive for the use of debt. While this is true of all industries, this note examines the particular base erosion risks from the use of debt by mining MNEs. This note responds to a concern of many developing countries that MNEs use debt "excessively" in mineral-producing countries (called "host countries" in this note for brevity) as a mechanism to shift profits abroad. This issue was one of the focus areas of the BEPS process (BEPS Action 4). It was also identified as being of high priority for developing countries at an informal workshop on DRM from mining, hosted by the OECD in October 2016.
Tax Incentives in Mining: Minimising Risks to Revenue*
Supplementing wider work undertaken by the Platform for Collaboration on Tax on tax incentives, this practice note focuses on the use of tax incentives in mining specifically, examining the tax base erosion risks they can pose. For many developing countries, receipts from mining are often a major source of revenue. The central task for policy-makers, therefore, is to design fiscal regimes for the mining industry that raise sufficient revenue, while providing adequate inducement to invest. Many times, governments have given tax incentives to mining investors that have turned out to be overly generous, forgoing significant tax revenues and sometimes resulting in conflict with investors. Preventing similar occurrences from happening again demands sector-specific guidance on the design and use of tax incentives.
Monitoring the Value of Mineral Exports: Policy Options for Governments*
Ensuring appropriate pricing of minerals relies on high-quality, accurate testing facilities and controls. The practice note aims to increase policy-makers’ knowledge of the process of determining the value of exported minerals. The focus is determining the value (or quality) of mineral exports, not the quantity. While there is a risk that companies may underestimate both, verifying the value of minerals is more complex and requires more technical expertise. Additionally, most governments have some measures in place to verify quantity—for example, draft surveys to calculate the weight of a ship carrying minerals for export—whereas the skills, expertise and facilities to monitor mineral value are lacking.
* These practice notes reflect a broad consensus between the OECD and the IGF, but should not be regarded as the officially endorsed view of either organisation or of their member countries.