Published: 19 October 2018
Download the practice note
Many governments are concerned about high levels of debt allocated to mines in their jurisdiction. Companies can finance a mining investment through debt or equity. Interest payments on the debt are tax deductible, whereas dividends are not. Unless there are limitations on the deduction of interest, there is a risk that companies will allocate higher debt levels to the host country in order to pay less tax.
This practice note has been prepared under a programme of co-operation between the Organisation for Economic Co-operation and Development (OECD) Centre for Tax Policy and Administration Secretariat and the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF), as part of a wider effort to address some of the challenges developing countries are facing in raising revenue from their mining sectors. It helps policy-makers understand how mining companies legitimately use debt finance within a corporate group. It also explores how countries can best set limitations on the use of interest where there is demonstrable, aggressive profit shifting occurring.