“I will use what I learned to alert my colleagues about the risks emerging from international tax treaties, transfer pricing, and offshore indirect transfers. The latter has generated huge revenue losses for tax administrations in Africa. Officials need more training like this to build capacity on mining tax issues.”
Offshore Transfer of Mining Assets
Transferring ownership of company assets (or the companies themselves) can generate significant income that many countries seek to tax as capital gains. Companies may structure transactions so that they fall outside the mining country’s tax base by selling shares in an offshore company holding the asset, often without notifying tax authorities in the country where the asset/company is located. This practice can also benefit from overly favourable provisions in tax treaties and has been the subject of multiple international arbitrations.
In recent years, many resource-rich countries have taken steps to review their domestic legislation and international treaty network to improve their ability to tax offshore indirect transfers of assets. However, challenges related to the valuation of mining licences and assets for the purpose of taxation can make implementation difficult.
We are advising governments on strengthening their legal frameworks for taxing offshore indirect transfers, as well as providing capacity-building and audit assistance. We have developed a training program on valuing exploration and mining licences and permits. A practice note on the administrative challenges of taxing offshore indirect transfers and asset valuation in the mining sector will be completed in 2021.
- The Platform for Collaboration on Tax – The Taxation of Offshore Indirect Transfers: A tool kit
- Columbia Center on Sustainable Investment – Designing a Legal Regime to Capture Capital Gains Tax on Indirect Transfers of Mineral and Petroleum Rights: A practical guide
- United Nations – Handbook on Selected Issues for Taxation of the Extractive Industries by Developing Countries (Chapter 4)