Mining Specifics

 

  • Examples of effective tax administration policies include: 

       

    • Separate Unit: where mining is an important sector in terms of the relative or actual size of tax payments, the Tax Authority may have a separate Mining Unit as part of its Large Business Unit with well skilled and experienced staff and adequate resources including computer system.

    • Tax audits: (also see above, Chapter 7) many tax administrations do not undertake mining company field tax audits which creates the risk of substantial underestimation and payment of taxes since companies will interpret tax rules to their advantage and may also exploit loopholes unless audited.  Less reputable companies may also over state assets through inflated intangibles or other questionable actions.

    • Projections of expected tax assessments: obtaining annual projections from mining company of expected tax assessments can provide the tax authority staff with a baseline to measure against since mining tax returns are generally very large and complicated.

    • Cross checking different returns: states should be familiar with the operations  and profitability of each large mining tax payer and large mining operation and will cross check the additional tax calculations and data for consistency with other tax submissions such as profits tax, dividend tax, VAT and customs declarations.

    • Transparency: all tax rates should be public knowledge.

    • Double Taxation Agreements (DTA) prevent double taxation of the same income or profits by two different governments and thus make the investment environment more attractive. But host countries need to protect themselves from investors’ treaty shopping and locating “paper” parent companies in tax treaty countries for purposes of tax avoidance (again, see above, Chapter 7).

    • Policies that guard against the use of heavily leveraged subsidiaries (in particular) utilizing high costs of servicing debts to reduce tax liability, and that further guard against the use of inter-affiliate transactions for tax avoidance purposes (for both, again, see above, Chapter 7).
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