Critical minerals in Central Asia

Base Erosion and Profit Shifting tax risks in Central Asia’s Critical Minerals sector

The critical minerals sector presents significant potential for domestic revenue mobilisation, yet this potential is vulnerable to Base Erosion and Profit-Shifting (BEPS) practices by multinational enterprises (MNEs). BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to shift profits away from the jurisdiction where economic activity takes place, thereby reducing taxable income in source countries. While global revenue losses from BEPS are substantial, these risks are particularly acute in resource‑rich emerging economies such as those in Central Asia, which rely heavily on corporate income tax and extractive sector revenues and face constraints in legislative design and administrative capacity (OECD, 2025[141]).

In Central Asia, OECD analysis has identified three key BEPS risks in the critical minerals sector: i) under-pricing of mineral sales, ii) abusive related-party financing structures and iii) the offshore indirect transfer (OIT) of mining licences. These risks are reinforced by gaps in domestic tax legislation and limited access to information, making them challenging for tax administration to detect and address effectively.

Under-pricing of mineral sales

Under‑pricing of mineral sales is a key BEPS risk in Central Asia’s critical minerals sector. Instead of selling minerals at arm’s length prices to independent buyers, companies may sell output to related or co‑ordinated entities located in low‑ or no‑tax jurisdictions at prices below market value. These entities then resell the minerals at market prices, shifting profits out of the producing country and eroding the local tax base. This risk is heightened for critical minerals that lack transparent or widely quoted benchmark prices, making it more difficult for tax authorities to establish an appropriate arm’s length price. Under‑pricing directly reduces corporate income tax liabilities and, where applicable, ad valorem royalties and profit‑based rent taxes. It can also reduce dividend withholding tax by lowering reported profits in the producing jurisdiction.

In the Kyrgyz Republic, existing legislation explicitly allows mineral sales prices to deviate from market prices by up to 20%, creating significant scope for profit shifting. In some cases, such deviations may eliminate the entire taxable profit margin in the producing country, with profits instead recognised by offshore entities. Evidence from the region also points to the use of intermediaries that are not formally part of an MNE group but co‑ordinate transactions to avoid the application of transfer pricing rules. These opaque arrangements are particularly difficult to detect given current limitations in information exchange and audit capacity.

The use of abusive financing structures for critical mineral projects

Abusive related‑party financing structures present a second major BEPS risk in Central Asia. Mining projects require substantial upfront capital and often operate at a loss during exploration and early development. While independent investors typically provide equity in such high‑risk phases, intra‑group financing within MNEs frequently takes the form of related‑party debt at non‑arm’s length interest rates or with excessive leverage. This allows companies to generate large interest deductions that erode the tax base before production begins.

Evidence from Tax Inspectors Without Borders (TIWB) programmes in Kazakhstan and Mongolia shows that intercompany debt abuse in the mining sector is widespread. High interest rates, inflated debt levels and the misclassification of equity‑like instruments as debt are common features. These practices are difficult to challenge where tax administrations lack clear legal tools, financial expertise or effective interest‑limitation rules.

While Kazakhstan has begun strengthening its capacity to assess related‑party financing with OECD and TIWB support, the Kyrgyz Republic remains fully exposed to this risk. It lacks interest‑limitation rules and does not allow transfer pricing or market‑price concepts to be applied to financial transactions, leaving tax authorities with no legal basis to challenge abusive structures.

Offshore indirect transfers of mining licences

The offshore indirect transfer of mining licences is a further significant BEPS risk in the region. Large capital gains may arise when investors sell mining licences, which can be extremely valuable assets. While direct sales of licences or shares in domestic licence‑holding companies are often taxable, investors may avoid local taxation by selling shares in offshore holding companies that indirectly own the licence.

In Central Asia, legal frameworks to tax such offshore indirect transfers are uneven. Kazakhstan has made progress by implementing international standards on transparency and information exchange, including participation in the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. This enhances its ability to obtain information on offshore transactions. By contrast, Uzbekistan’s tax rules cover only direct sales of shares in Uzbek entities and do not capture indirect transfers through foreign holding companies, leaving a significant gap in the taxation of capital gains linked to domestic mineral assets.