Administering and complying fiscal regimes in a globalised mining industry

Abstract

There is a vast difference between formulating sound fiscal mineral policy/legislation and successfully administering it in a manner that promotes the desired taxpayer behaviour, facilitates compliance and reduces tax minimisation, avoidance and the incidence of disputes. The progressive globalisation of the mining industry has created a new modus operandi including fragmentation of the value chain with increased cross-border transactions between related companies owned by the same multinational enterprise (MNE). Significant issues arise to ensure that the related transfer prices are at-arms-length and ideally result in the appropriate level of profit and tax being paid in the jurisdictions in which value has actually been added with no erosion of the tax base of and shifting of profits from the country hosting the mining operations. In spite of significant efforts by international institutions, such as the OECD, the UN, The IMF and the World Bank, developing appropriate guidelines and governments amending their tax systems to close emerging loop holes, MNEs continuously restructure their operations to take advantage of tax arbitrage opportunities to pay most of their taxes in foreign, often low tax jurisdictions thus minimising the amount of tax paid at the consolidated enterprise level. These processes impose considerable administrative pressure on both generally under resourced tax authorities and industry.