For many resource-rich developing countries, mineral resources present an unparallelled economic opportunity to increase government revenue. Tax base erosion and profit shifting (BEPS) and weak tax administration in developing countries threaten this prospect.
Why Is the IGF Working to Combat Tax Avoidance?
The International Monetary Fund (IMF) estimates that developing countries’ BEPS revenue losses exceed USD 200 billion annually across all sectors.
With a long list of Sustainable Development Goals (SDGs) to finance, and the end of the commodities super cycle, it is now more important than ever that resource-rich developing country governments ensure that existing mining projects contribute their full share to government budgets.
In 2016, IGF member country governments identified BEPS as their primary collective concern.
IGF believes that equipping developing country governments with the knowledge, skills and tools to build and administer mining tax systems that are robust enough to address BEPS is central to improving domestic revenue mobilization and enabling countries to achieve full implementation of the SDGs.
To deliver the best results for its members, IGF has partnered with the Organisation for Economic Co-operation and Development (OECD) Centre for Tax Policy and Administration, combining its mining expertise with the OECD’s knowledge of taxation to design sector-specific solutions to some of the most pressing base erosion challenges facing developing countries.
IGF member countries will be involved in the program throughout, providing guidance, input and feedback to ensure solutions are responsive, practical and capable of being implemented in resource-constrained environments.
A Menu of Issues
More than 100 countries are working together to address tax base erosion and profit shifting through the G20/OECD BEPS initiative. The Inclusive Framework on BEPS aims to address significant gaps in existing national and international tax rules that are exploited by multinational corporations.
This program builds on the OECD BEPS actions to include other causes of revenue loss in the mining sector, such as the use of harmful tax incentives, abusive hedging arrangements and metals streaming.
We will cover 10 issues: Excessive Interest Deductions; Transfer Mispricing; Undervaluation of Mineral Exports; Harmful Tax Incentives; Tax Stabilization; International Tax Treaties; Indirect Transfer of Mining Assets; Metals Streaming; Abusive Hedging Arrangements; and Inadequate Ring-fencing.
We will develop a combination of policy and administrative tools for use by resource-rich developing country governments for each of the 10 issues.
We will also deliver a menu of training options for member country governments which will be a mix of annual training events on BEPS issues, as well as country-specific training and direct advisory services. With support from GIZ, the IGF will develop a diagnostic tool that countries can use to identify the specific BEPS risks they need help with. The IGF will then gather the relevant policy guidance and tools to provide a tailored package of support.
The full workplan is available here.
Work Has Already Begun
Training on Transfer Pricing Risk Assessment for the Mining Industry
IGF is providing training to help African tax authorities address transfer mispricing in the mining sector. The first workshop was delivered to the Government of Côte d’Ivoire in October 2017 and a second is being prepared for Liberia in February 2018. Governments interested in training may contact project lead Alexandra Readhead at email@example.com for more information.
This training is be based upon a new toolkit aimed at helping African tax authorities address transfer mispricing in the mining sector published by the African Tax Administration Forum (ATAF) with Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (GIZ).
The Toolkit for Transfer Pricing Risk Assessment for the African Mining Industry helps to determine whether particular high-risk, related-party transactions should be selected for a transfer pricing audit. IGF was invited to be the toolkit’s official training partner.
Read more about the training in this blog.
IGF Technical Workshop on Tax Base Erosion and Profit Shifting
This daylong workshop, presented in collaboration with the OECD during the IGF’s Annual General Meeting, provided a forum to discuss these challenges:
- Transfer pricing
- Mineral product pricing
- Excessive interest deductions (use of debt)
- Tax incentives
- Investment treaties and stability agreements.
- Alexandra Readhead is Technical Advisor to the IGF on Tax Base Erosion and Profit Shifting. She is a specialist in international taxation and the extractive industries.
- Dan Devlin is the Senior Economist in Natural Resource Taxation at the OECD. He is also a technical adviser to the OECD-UNDP Tax Inspectors Without Borders project on mining in Liberia.
- Howard Mann is an Associate & Senior International Law Advisor to IISD and IGF. He is a specialist in international investment and sustainable development law, as well as mining contract negotiations.
Want to Get Involved?
We recognize that there are many governments, organizations and individuals with significant expertise in mineral tax policy and administration, and we are keen to leverage this wherever we can. Current collaborators include: the International Monetary Fund, United Nations Tax Committee, the World Bank Group, the African Development Bank, the African Mining for Development Centre, the International Senior Lawyers Project, and the International Council on Mining and Metals.
Please get in touch if you or your organization would like to know more about the program, or have something to contribute or suggestions for us.
The program has initial funding from Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (GIZ) and the Canadian government.
More funds are still required.