Base Erosion and Profit Shifting (BEPS)

BEPS and the mining sector

The G20 / OECD’s Base Erosion and Profit Shifting (BEPS) project has truly ‘come of age’ in recent months. The publication of the final BEPS papers in October last year articulated specific requirements and recommendations for changes to international corporate taxation, some of which will take effect in the near term.

It is clear that the impact of these changes will not be limited to any particular sector.

Mining companies need to keep abreast of these rule changes, appraise their current corporate structures and business models, and be ready to take action where necessary.

BEPS Actions and the mining sector

We focus on four specific areas of international taxation addressed by the BEPS Actions which we consider will most directly impact the mining sector:

1. Interest deductibility (Action 4) - Recommendations for countries to adopt system-wide limitations on interest deductions pose significant risks to some common commercial aspects of how international mining groups typically finance their overseas operations. By way of example, our report considers mining groups whose parent company may have a ‘structural’ finance deficit, and groups which align their local interest burdens to the commercial realities of local regulatory conditions or the maturity of their assets within the mining life-cycle.
2. Tax treaties (Action 6) - Recommendations for minimum standard anti-abuse provisions to be embedded into bilateral tax treaties may cause some mining groups to look again at their corporate structures to assess what reliance they place on such treaties and whether opportunities exist to rationalise or re-align their group structure.
3. Permanent establishments (Action 7) - Proposed changes to the definition of permanent establishment in the OECD Model tax treaty are likely to significantly increase instances where certain common commercial activities within the mining sector trigger a new taxable presence. We consider examples such as the stockpiling of mineral ore en route to customers, and overseas marketing activities.
4. Transfer pricing (Actions 9, 10 & 13) - Various revisions and guidance arising from Actions 9 and 10 seek to align the geographical allocation of returns with true value creation, based on the relative risks assumed between group companies. We look particularly at implications for cross-border commodity transactions involving internal group sales and marketing companies as well as the new transfer pricing documentation and country-by-country reporting requirements which are imposed by Action 13.

Global view: BEPS country scorecards

The report also provides Deloitte’s perspective on how some of the world’s major mining jurisdictions view, and may respond to, the BEPS project findings - countries surveyed include Australia, Brazil, Canada, Chile, Colombia, China, India, Mexico, Peru, Russia, South Africa and the US.

Investigate the BEPS Country Scorecards.

The BEPS project, once embedded into domestic tax regimes and through international protocols, is widely expected to deliver the biggest change to the international tax landscape since the first model tax treaty was published by the OECD in 1963.

Mining companies should monitor and assess these rule changes and be ready to take action where necessary,