On 23 March 2022 a blog post by the training unit of the OECD, the African Tax Administration Forum (ATAF) and the Intergovernmental Forum on Mining, Minerals, Metals, and Sustainable Development (IGF) considered how to strengthen the role of the tax administration in ensuring that appropriate revenue is collected from taxpayers engaged in mining activities.
The blog post entitled: Meeting the Moment: Strengthening tax administration to raise mining revenue mobilization across Africa emphasises the importance of domestic resource mobilisation and the need to stimulate economic recovery from the crisis caused by the pandemic. The resulting budgetary pressure means that governments across Africa must look to important sectors such as mining to generate a fair share of government revenue that can help build a basis for economic recovery.
Resource-rich countries in Africa have found that the mining sector has not yielded as much revenue as might be expected owing to factors such as aggressive tax planning by companies, the granting of unnecessary tax incentives by government and lack of resources and expertise in the tax administration.
The OECD, ATAF and IGF held a series of virtual seminars for government officials from mining, finance and revenue departments during 2021, looking at revenue risks from base erosion and profit shifting (BEPS) in the mining sector and aiming to strengthen tax administration capacity to address the challenges. The virtual seminars provided a forum for tax officials from different countries to consider the issues together and learn from each other’s experience. The BEPS issues that were most significant for the government officials were the granting of fiscal incentives to companies and the taxation of offshore indirect transfers.
Fiscal incentives for mining
African countries have for a long time offered tax incentives in addition to preferential rates in double tax treaties to attract foreign investment. The tax concessions have led to losses of government revenue often without having the intended effect on investment. African countries have tended to offer the types of incentive that are most detrimental to revenue collection and these countries would do better to target incentives more specifically to obtain the intended increases in foreign investment. Through aggressive tax planning practices such as treaty shopping, multinationals can take advantage of measures offered in bilateral tax treaties to obtain benefits for themselves that were not intended by governments.
The granting of tax incentives is less likely to have the intended effect following the international agreement on a global minimum tax rate, which would charge additional tax on large multinationals if their effective global tax rate falls below 15%. It is therefore possible that, as a result of the global minimum tax, a tax concession granted by an African country would not have any incentive effect for large multinationals operating on their territory.
Offshore indirect transfers
Aggressive tax planning by multinationals can also deprive African countries of tax on gains realised from the sale or transfer of mining assets. A multinational can arrange for the gain to arise in another (lower tax) jurisdiction if the transferor of the asset is tax resident in another country; or provisions of double tax treaties can be used to argue that the gain is not taxable in the country.
Tax administration officials can build a basis for greater expertise in this area by studying the toolkit on offshore indirect transfers issued by the Platform for Cooperation on Tax. Also, a practice note is to be issued by the OECD and IGF.
