The practice note explains the concept of ring-fencing in mining, its benefits, design options, and implementation challenges, drawing on international experiences to guide effective tax policy and administration.
The OECD has released a new toolkit aimed at helping developing countries address tax policy and administration challenges associated with the ring-fencing of mining income.
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 revenue and expenses are treated for tax purposes, i.e., consolidated or ringfenced from different projects and activities, is an important policy consideration for governments.
This 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 is primarily intended for government policy-makers of resource-rich developing countries that are considering introducing ringfencing rules for their mining sector or governments that are seeking to improve the design and implementation of existing ring-fencing rules. It aims to generate informed, well-grounded decisions, particularly with respect to decisions on introducing ring-fencing rules into mining tax regimes (and on their design), by identifying the benefits and risks and how to address them. It may also be used by tax administration officials to improve the implementation and administration of ring-fencing rules. Finally, the practice note may help international organisations advise resource-rich developing countries on the design and implementation of ring-fencing rules and enable civil society groups to examine existing rules to strengthen government and industry accountability.
