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Minimizing the Risks of Tax Incentives in Mining

Tax incentives are costly, leading many countries to forgo vital revenues in exchange for often illusive benefits.

In a world of mobile capital and profits, many resource-rich developing countries use tax incentives in the hope of attracting investment. Their effectiveness is often disputed, especially in the mining sector, which involves location-specific resources that cannot be moved, making investment less mobile and less responsive to incentives.

Our practice note, Tax Incentives in Mining: Minimizing Risks to Revenue, helps government decision-makers analyze tax incentives in relation to mining fiscal regime design and contract negotiations. In particular, the focus is on the ways that mining investors may change their behaviour in response to tax incentives to maximize the tax benefit beyond what government intended—the BEPS risks.

The practice note, which is also available in French, is supplemented by an open source beta-stage financial model for estimating the revenue foregone from tax incentives in mining. It is not a one-size-fits-all model, but a tool that can be used to illustrate the potential BEPS impacts of tax incentives.

We have also undertaken a comprehensive review of mining tax incentives in 21 countries, which found that more than half have offered a complete exemption from corporate income tax for nine years on average. The IGF Mining Tax Incentives Database is the most granular view of tax competition in mining yet, showcasing how common tax incentives are in mining. Our research compares the fiscal regimes of 104 mining projects across 21 countries and is the first large-scale, systematic attempt to compile tax incentives used by developing country governments to attract mining investment.
This practice note, created in partnership with the Organisation for Economic Co-operation and Development (OECD) Centre for Tax Policy and Administration, looks at tax incentives in the mining sector with the aim of generating informed, well-grounded decisions with respect to potential revenue cost.