“Large-scale mining is emerging a major economic sector in Ecuador and this elevated knowledge of BEPS risks will inform our manuals for tax audits in the sector.”
Taxing the Digital Economy: Implications for Mining
To ensure that companies pay tax in jurisdictions where they conduct business but may have no physical presence, a group of more than 135 countries led by the Organisation for Economic Co-operation and Development (OECD) is reforming global taxation rules. This Inclusive Framework approved a two-pillar approach in October 2021 that will affect all sectors of the global economy.
The first pillar proposes to shift some taxing rights into market or destination countries, for the largest 100 multinational enterprises (MNEs), and to remove all unilateral digital services taxes. The logic of the proposal is not suited to the extractive industries and this first pillar now excludes minerals and hydrocarbons.
The second pillar of the OECD’s proposal, called the Global Anti-Base Erosion Proposal (GloBE), seeks to use a global minimum tax to discourage MNEs from transferring profit away from countries of operation. This could support effective taxation in resource-rich developing nations. The Inclusive Framework released GloBE model rules in December 2021 and will publish an accompanying commentary soon. The final design of the rules and their implementation by members of the Inclusive Framework will matter for resource-rich countries. Thousands of MNEs, including many mining companies, will be subject to GloBE rules.
In 2021, the IGF prepared a briefing note outlining the OECD’s global digital tax reform proposal and key concerns for mining nations, Global Digital Tax Reforms: Highlighting Potential Impacts for Mining Countries is available in English, French, and Spanish.
To dig deeper into the topic, the IGF partnered with the African Tax Administration Forum (ATAF) to examine a critical issue, arising under the OECD-led proposal, that could cost resource-rich developing countries mining investment and revenue from the sector. In April 2021, IGF and ATAF published Global Digital Tax Reforms and Mining: The Issue of Timing Differences.
Forthcoming work will continue to study specific mining issues related to proposed global tax reforms, including the scope of the carve-out of the mining sector from Pillar 1, and the impact of Pillar 2 on the use of tax incentives.
Global Minimum Corporate Tax, Incentives, and Developing Countries
The more than 135 countries adopting the global minimum corporate tax will need to implement and administer the rules in accordance with model legislation and a commentary approved by the OECD/G20 Inclusive Framework. In November 2021, the International Institute for Sustainable Development (IISD), the IGF’s host, issued a briefing note with recommendations on how the OECD could design the model legislation and commentary to effectively address the issue of stabilized tax incentives. It builds on IISD’s earlier guidance to developing country governments on how to amend tax incentive regimes to benefit from the global minimum tax and the IGF’s mining-specific resources on the issue. After the OECD released implementation guidelines, IISD published a blog analyzing the implications for developing countries.
IGF-ATAF Presentation: Global Digital Tax Reforms and Mining: The issue of timing differences
IGF Guest Blog
- ICTD – Is the Inclusive Framework Tax Deal in the Interests of Lower-Income Countries?
- International Centre for Tax and Development – Taxing the Digitalising Economy
- ATAF – Opinion on the Inclusive Framework Pillar One (including the Unified Approach) and Pillar Two Proposals
- IMF – Corporate Taxation in the Global Economy
- OECD – Digital Economy