In recent years, metals and mining industry experienced a substantial increase of problems with the tax authorities of the countries that they are operating in. This past November Ernst and Young conducted a survey that found out that “Global mining and metals companies are prime targets for increased taxes and levies”. The 2009 Tax Survey for Mining and Metals looks into the opinions of executives of the mining and metals industry. Over 40 tax directors of the top 100 global mining and metals companies were interviewed in the first half of 2009.

So, why mining companies are targeted? This is partly a result of the past of the ‘golden’ pre-crisis period when many global mining companies had outstanding profits and decent cash-flow. Quite naturally, the governments start looking into these companies as a suitable source for additional revenue. E&Y mentions Australia, Canada, South Africa, Chile and Peru. In fact, 72% of respondents to the poll mention this:

The report reveals that the governments’ attitudes to taxation of mining companies is becoming more and more complicated: with different and rigorous documentation requirements, and better cross-border information sharing methods.

Of course, everyone knows that it costs a fortune to establish a decent mining operation, so, many countries provide some tax incentives, which are also analyzed in this report. Thus, mining executives, considering threatening economic circumstances “must learn to do more with less”. With the development of the global economy demand for minerals and metals is mounting – so taxation of mining companies is emerging as one of the acute concerns. Therefore, this E&Y report provides a good insight in the upcoming and existing challenges.  It can be downloaded here.

And, as usual some useful links:

I would recommend reading this 2005 Brochure: Tax law strategies for mining companies and their investors by Fraser Milner Casgrain LLP –  Canadian Business litigation and Law firm.

2006 Analysis Significant Taxes in Select Jurisdictions prepared by the Office of Representative Paul Seaton – provides a comparison of mining taxes worldwide.

A very good picture is provided in this classic (though a bit outdated) report: Mining Taxation in Developing Countries: Exploration expenses; Mine development; Equipment imports; Export sales; Commodity price cycles; Post production expenses. This 2004 book Mining Royalties gives a country wise discussion.

This PwC presentation discussed the issue in several African states (Botswana, Gambia, Tanzania, Zambia) Mining Taxation – Where to from here?