“The entire BEPS in mining course has been a revelation. We always thought that we were the only country having problems with things like transfer pricing and permanent establishment, it has been great to listen to solutions from other countries. As government officials, this training helped us to identify and scrutinize international tax and transfer pricing issues in the mining sector in our country.”
Transfer pricing occurs when companies exchange goods or services for pay with other affiliated companies. Transfer mispricing occurs when one company sells goods or services to another related company at an inflated or deflated price in order to allocate profits to a lower-tax jurisdiction. Because these transactions are internal to a multinational company, they are often not subject to market pricing. This program area focuses on how to distinguish between legitimate transfer pricing and transfer mispricing.
Related-party transactions in mining can be broadly grouped into two categories: the sale of minerals and/or mineral rights to related parties, and the purchase or acquisition of various goods, services, and assets from related parties.
Developing countries require sector-specific expertise to detect and mitigate transfer mispricing in the mining sector. One way governments can address transfer mispricing is by passing laws and regulations that request companies to apply the “arm’s-length” principle where related-party transactions are treated as if they were transactions on an open market. However, capacity for tax administrations to implement tax avoidance rules to deal with transfer mispricing is critical.
Based on a tool kit written by IGF Lead on Tax and Extractives Alexandra Readhead, in collaboration with ATAF and GIZ, the IGF developed an intense training course to identify the risks and possible responses to transfer pricing in the mining sector. To date, this groundbreaking course has been used to train officials in Cote d’Ivoire, Liberia, Mongolia, South Africa, Tanzania, and Zambia.
The Mongolian Tax Administration partners with international organizations and issues first transfer pricing tax assessment for USD 228 million
- NRGI – Transfer Pricing in the Mining Sector Preventing Loss of Income Tax Revenue
- World Bank – Transfer Pricing in Mining with a Focus on Africa A Reference Guide for Practitioners
- The Platform for Collaboration on Tax – A Toolkit for Addressing Difficulties in Accessing Comparables Data for Transfer Pricing Analyses
- OECD – Transfer Pricing