On 26 July 2023 the OECD published comments received in response to the consultation on two toolkits relating to transfer pricing for minerals.

The first toolkit was designed to support developing countries in managing the transfer pricing challenges arising from pricing minerals. The other toolkit applied the transfer pricing framework to bauxite. Comments on the draft toolkits were received from ten commentators from tax administrations, advisory firms and business. The toolkits were issued for comment on 10 May 2023.

Business at OECD (BIAC, the business and industry advisory council) noted that the mining value chain set out by the OECD did not reflect the commercial reality for many multinationals in the mining sector as it omitted logistics, marketing, shipping, mine closure and remediation. No account was taken of the impact on the value chain of innovation or sustainability initiatives.

BIAC also suggested that there was inconsistency between the toolkits and the OECD guidelines. The framework set out in the toolkits focused only on two economically relevant characteristics or comparability factors, the physical characteristics of the product and the economic circumstances. These are only two of the five comparability factors outlined in the OECD guidelines. All the comparability factors must be examined to accurately delineate a transaction, and the taxpayer should determine which factors are economically relevant depending on the circumstances.

The Australian Taxation Office (ATO) considered that more weight could be given to obtaining third party contracts as a basis for the arm’s length conditions and price, to help understand the terms on which transactions are carried out with third parties. The ATO also noted that to arrive at the arm’s length conditions, it is necessary to consider all third-party contracts for the sale/purchase of the commodity that the taxpayer (or other entities within the group) has entered into in the period. However, there are difficulties for many countries in requiring taxpayers to provide this information, as taxpayers may say they do not possess this information; insist it is commercially sensitive; or say it will not help the pricing enquiry.

The Uganda Revenue Authority (URA) noted that the mining sector continues to be ineffectively regulated in most developing countries. This presents tax avoidance opportunities for multinational mining entities which often show a lack of transparency in their dealings, especially with related parties. The URA also suggested that although the use of the comparable uncontrolled price (CUP) method is reasonable as outlined in the documents, the resale price method should also be considered as a reasonable method. In developing countries, the mining company generally sells first to a related entity which sells them on to unrelated entities for refining.

The Zambia Chamber of Mines noted that the section of the guidance on the Sixth Method seems to guide users to consider a sixth method as a preferred method owing to its simplicity. This may be a problem as the over-simplification can lead to the allowed adjustments being very limited. This can produce an outcome that is inconsistent with the arm’s length principle.

Deloitte commented that the toolkits should support the application of the OECD Guidelines and double tax treaties, rather than present an alternative approach. Any additional practical guidance should be in line with the arm’s length principle. The pricing analysis should be based on indices used in the market, so businesses can apply adjustments based on accessible information. Indices need to be sufficiently accessible to businesses and to developing country tax authorities, taking into account the costs involved.