What is ring-fencing?
In most countries, corporate income tax is levied at the entity level, meaning that tax rules allow mining companies to consolidate income and deductions across different projects.
Ring-fencing is a policy choice under which countries create a fiscal fence around a project or activity, so that each one is taxed separately on its own. For instance, where an investor carries out other business activities in addition to the mining projects or operates across multiple stages of the value chain, e.g., production, processing, and transport, governments can introduce ring-fencing rules to prevent income and expenses from being consolidated across activities.
Why does ring-fencing matter?
Where ring-fencing rules don’t apply, mining companies that have multiple mining projects within a single country can create opportunities for tax optimization using losses incurred in one project to offset profits earned in another project, thereby delaying payment of corporate income tax.
For countries that choose to introduce ring-fencing rules, getting the design right is critical to securing tax revenues while continuing to attract further investment. While ring-fencing can potentially accelerate the payment of corporate income tax, it may also deter further exploration and development, limiting the future tax base.
Designing and Implementing Ring-Fencing Rules: Guidance and resources
- Ring-Fencing Mining Income: A toolkit for tax administrators and policymakers (in collaboration with the OECD) is a practical toolkit that explains how to design, apply, and administer ring-fencing rules for mining projects, with step-by-step guidance and policy considerations.
- Ring-Fencing in Mining: When, how, and what to consider – Intergovernmental Forum on Mining gives a concise overview outlining when ring-fencing is appropriate, how it can be structured, and the key trade-offs policymakers should evaluate.
- NRGI – Getting a Good Deal: Ring-fencing in Ghana examines how ring-fencing has been applied in Ghana and highlights lessons for improving revenue outcomes in the mining sector.
- HMRC – Oil and Gas: Ring fence corporation tax is the official UK guidance explaining how ring-fence corporation tax works to ensure oil and gas profits are taxed separately from other activities.
- IMF – Revenue Administration: Administering revenues from natural resources provides tax administrations with strategies for effectively managing, monitoring, and enforcing revenues from natural resource industries, including ring-fencing mechanisms.
Watch our webinar
This webinar launches the IGF-OECD practice note Ring-Fencing Mining Income: A Toolkit for Tax Administrators and Policymakers. It explores how ring-fencing works in practice, the potential benefits and risks, and key considerations for governments seeking to implement these rules effectively. Officials with direct experience share lessons learned and practical insights from experience in their countries.
Key topics
- What are ring-fencing rules in mining taxation
- Potential benefits and risks of the use of ring-fencing for governments
- Design and implementation considerations
- Lessons learnt from resource-rich countries