In October 2021, more than 130 countries approved a package of global tax rules that will affect the taxing rights and tax policy objectives of virtually every country in the world. A year and a half later, we have a clearer picture of what its implications will be. The G-20 still strongly supports the reform, and a growing number of countries are preparing to implement the new rules as early as January 2024. When they do so, other governments will have to assess how their own taxpayers are impacted and make any required changes to their tax policy.
The mining sector is important for many countries and is often a key source of tax revenue. Many multinational mining companies will be subject to the new global tax rules. Host countries have an interest in understanding how these new global rules may interact with their domestic fiscal regime for extractives. Policy-makers need to understand the different treatment of mining under each pillar of the Organisation for Economic Co-operation and Development (OECD)–G20’s so-called “Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy.”
Governments around the world are starting to take stock of the new global tax rules and adapt their own tax policies as a result.
Pillar One creates a new taxing right in countries where multinational corporations have customers or profitable businesses without a physical, taxable presence. It applies only to the 100 or so biggest multinationals. It is very relevant for digital-heavy companies, but less so for the mining industry because Pillar One explicitly excludes extraction activities. The Pillar goes even further and carves out the first stages of processing mineral output done in the country of extraction. This should reassure mining countries that their full taxing rights on resource extraction and in-country processing are preserved. The burden will be mostly on multinational mining companies to apply the exclusion and their home company jurisdictions to oversee.
Pillar Two creates a set of rules that together impose a global minimum tax of 15%. It applies to all companies with an annual global revenue threshold above EUR 750 million, which would cover most mid-size and large mining companies. Under the rules of Pillar Two, also referred to as Global Base Erosion rules, if a host country does not collect taxes from a mining company at a minimum effective rate of 15% in a given year, another country may have a right to collect the difference. Pillar Two will affect many countries that have low or no taxation, thereby changing how multinationals structure their global tax strategies. Although mining countries tend to have nominal corporate income tax rates higher than 15%, many offer generous tax incentives that can reduce effective tax rates below 15%, at least for a period of time. These incentives, especially profit-based incentives such as tax holidays, might need to be reviewed in light of the global minimum tax.
Governments around the world are starting to take stock of the new global tax rules and adapt their own tax policies as a result. They can take advantage of the new Guide for Developing Countries on How to Understand and Adapt to the Global Minimum Tax, published by the International Institute for Sustainable Development, the IGF’s host institute, and the International Senior Lawyers Project. And there are many other good resources from organizations such as the OECD, African Tax Administration Forum, the World Bank, the International Monetary Fund, and United Nations Conference on Trade and Development.
Beyond the Two-Pillar solution, tax policy globally is undergoing more changes than it has for decades. Many countries have realized that international tax rules are not set in stone, and this opens up opportunities for new ideas. For example, the United Nations’ resolution to initiate intergovernmental talks on tax marks a major departure from the status quo. In the mining sector specifically, the IGF and African Tax Administration Forum’s initiative on the Future of Resource Taxation is designed to help governments and other stakeholders rethink policy design. The IGF Secretariat’s Global Mining Tax Initiative will remain focused on how these reforms will affect mining countries.