Base erosion and profit shifting

Tax Incentives in Mining: Minimising Risks to Revenue


Tax Incentives in Mining: Minimising Risks to Revenue

Published: 19 October 2018


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Tax incentives are costly, leading many countries to forgo vital revenues in exchange for often illusive benefits. In a world of mobile capital and profits, many resource-rich developing countries use tax incentives in the hope of attracting investment. Their effectiveness is often disputed, especially in the mining sector, which involves location-specific resources that cannot be moved, making investment less mobile and less responsive to incentives.

This practice note, created in partnership with the OECD Centre for Tax Policy and Administration, looks at tax incentives in the mining sector with the aim of generating informed, well-grounded decisions with respect to potential revenue cost.

It helps government decision-makers analyse tax incentives in relation to mining fiscal regime design and contract negotiations. In particular, the focus is on the ways that mining investors may change their behaviour in response to tax incentives to maximize the tax benefit beyond what government intended—the BEPS risks. It is supplemented by an open source beta-stage financial model for estimating the revenue foregone from tax incentives in mining. It is not a one-size-fits-all model, but a tool that can be used to illustrate the potential BEPS impacts of tax incentives.


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