A mining company may undertake multiple projects and/or several activities along the mining value chain or be engaged in other commercial or investment activities. The manner in which its revenue and expenses are treated for tax purposes, if they are consolidated or ringfenced from different projects and activities is an important policy consideration for governments.
This IGF-OECD practice note aims to clarify what ring-fencing means in the context of mining taxation, the advantages of adopting ring-fencing rules, and how to mitigate potential challenges through robust tax policy design and effective tax administration practices. It describes and evaluates the different options for designing ring-fencing rules based on the experience of resource-rich countries and highlights key implementation issues that have emerged.
This practice note seeks to help governments of resource-rich countries decide if ring-fencing rules are necessary and, if they are, how to design them to safeguard the timing of government revenues. Each resource-rich country will have to consider, prior to implementation, the appropriateness, including the positive and negative aspects of a ring-fencing regime as a policy option given their fiscal conditions and taxation framework.
