The OECD and the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) announced the release of the first set of practice notes for developing countries on BEPS risks in mining.
About the OECD/IGF Co-operation
The IGF and OECD Centre for Tax Policy and Administration have formed a partnership, combining the IGF’s mining expertise with the OECD’s knowledge of taxation, to help developing countries in raising revenue from the mining of mineral resources by designing sector specific guidance on some of the most pressing base erosion challenges facing resource-rich developing countries.
The published practice notes reflecting the comments received on the draft toolkit document's preliminary version. The practice notes concern:
- Limiting the Impact of Excessive Interest Deductions on Mining Revenue. This note responds to a concern of many developing countries that MNEs use debt “excessively” in mineral-producing countries as a mechanism to shift profits abroad. The note provides suggestions to developing countries to implement limitation rule transparently and consistently across projects and without administrative discretion. BEPS action 4, interest withholding tax and transfer pricing can be used as guidance where aggressive tax base erosion in the mining sector is encountered. Lastly, the note emphasizes that countries must also be alert to the re-characterization of income if new limitations on interest are implemented.
- Tax Incentives in Mining: Minimizing Risks to Revenue. This practice note highlights many important points that should be considered by the government in providing a tax incentive for the mining sector, including: avoiding tax incentives that create parallel domestic fiscal regimes and create cliff edges; abolishing the most damaging incentives (notably tax holidays); clearly defining the investment expenses to which cost-based. Further, the notice also recommends the government to carefully consider the BEPS risks of incentives that lower the rate of tax on outbound payments to foreign entities incentives apply which may lead to abusive transfer pricing, and to reduce the potential costs of poorly designed programmes by reviewing the tax incentive program regularly.
- Monitoring the Value of Mineral Exports: Policy Options for Governments. The practice note is intended to help governments of resource-rich developing countries choose the most appropriate policy response to the risk of undervaluation. The practice note should be used in combination with the mineral product pricing case studies published by the Platform for Collaboration on Tax (PCT, 2017a), which provide practical guidance to government on how different mineral products (e.g., gold, copper, iron ore and thermal coal) are priced.
All the notes listed above reflect a broad consensus between the OECD Centre for Tax Policy and Administration Secretariat and the IGF but should not be regarded as the officially endorsed view of either organization or their member countries.