Tax Solutions for Mining

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Tax Solutions for Mining

Understanding the complexities of mining operations, providing simplified solutions

The African Mining industry is an integral cog to what is an intricate market landscape. Understanding the complexities of the various in-country regulations and tax rules is vital for business to navigate profitably through the industry. Deloitte Tax experts specialise in identifying real time solutions for mining entities across multiple tax disciplines, to help business effectively manage their tax needs.

An overview of our Tax Solutions

Mining Tax

There is a special tax dispensation for the mining industry which is contained in Sections 15 and 36 of the Income Tax Act. Deloitte assist clients in optimising the deductions with a specific emphasis on capital expenditure.

Tax Technology

We have developed a specific mining tax module for our corporate tax software solution, Corpsmart. This software solution facilitates the completion of your tax return.

Expatriates in the mining industry

As firm expand into new markets, there are many tax and permit related matters that need to be carefully planned for the employees. We offer a comprehensive expatriate tax and permit service, especially into Africa, to ensure these risks are mitigated.

Merger and Acquisition Advisory

We advise on the most tax effective structuring in mergers and acquisition deals and provide due diligence services on mining acquisitions.

Tax Compliance

We provide specialist services on income tax return compliance to the mining industry.

Value - Added Tax

Our VAT team advises value to the mining industry in the main areas of compliance with the diesel rebate scheme compliance and identifying opportunities of overpayments of VAT due to under claims of input tax deductions and cross-border VAT compliance are paid by careful upfront planning.

Customs

The mining industry exports a significant portion of its output. We offer a comprehensive export compliance service to ensure all opportunities are identified and risks mitigated in the export supply chain.

On the import side many raw materials, consumables and capital equipment are imported for use on the mines. Our Customs team will ensure that the correct customs duties are paid by careful upfront planning.

Government Grants and Incentives

Apart from the Mining Tax dispensation, we believe the industry can benefit from the many government grants and incentives on offer from the South African government and overseas government agencies.

Our Government Grant Initiatives team specialises in maximising these grants and incentives in the following main areas, namely, research and development, infrastructure competitiveness enhancement and major capital expansion plans.

Transfer Pricing

Many mining companies are part of large multinational groups and they have significant cross-border transactions with connected parties in the group. Our transfer pricing team will ensure these transactions are carefully planned to minimise any transfer pricing exposures.

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Tax Management Consulting Solutions

Challenges mining companies face

The recent global economic crisis has resulted in state intervention all over the world and in numerous industries. Mining houses are forced to keep abreast of the many changes in tax legislation regarding the mining industry as well as staying focused on the running of day to day business operations.

Tax compliance in general, has inevitably become a potential tax minefield.

How does the Deloitte solution address the business issue?

Deloitte mining tax specialists apply their specific expertise to corporate tax issues in the mining industry. Our main expertise lies in tax planning and the ability to assist with preparing or reviewing tax returns and year-end tax accruals.

In addition to the above, due to the complexities and murkiness surrounding the calculation of the mining royalty payable by mining houses, our mining tax specialists have:

  • Developed a highly skilled knowledge base regarding the interpretation of the controversial legislation around the mining royalty
  • Formulated a means to assist with the calculation of the actual royalty payable.

Service offerings:

  • Consulting
  • Compliance
  • Mining Royalty calculations
  • Restructuring, including advice on implementation and drafting of legal agreements
  • Indirect tax advice;
  • International Tax advice
  • Tax strategy
  • Tax technology and systems integration
  • Government Growth Initiatives.

Benefits to your organisation

You will enjoy the distinct advantage of obtaining the very best advice from leading professionals in each area of tax who can all be found under one roof - from legal advisers to thought leaders who will strive to assist you to identify the optimal financial, practical and most tax effective mechanisms that will see your company not only prosper but flourish.

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Global Employer Services

Challenges mining companies face

As companies grow and become more global in scope, employment issues become more complex. Among the most serious challenges businesses face today is compliance with multifaceted tax laws and labour regulations.

How does the Deloitte solution address the business issue?

Deloitte offers well-rounded plans and programme development strategies that can help transform global employment programme.

Our services include:

  • International assignment services
  • Compensation and benefits
  • International human resources
  • Risk talent rewards
  • Technology

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Tax Efficient Supply Chain

Challenges mining companies face

One of the greatest opportunities to unlock value in the mining industry is to plan across the entire supply chain. Since the major markets for African commodities include Asia, the US and Europe, companies need to identify efficiencies beyond their own borders. This includes the careful management of risks across different jurisdictions.

How does the Deloitte solution address the business issue?

Business Model Optimisation (BMO) enables companies to obtain operating and tax efficiencies.

This includes four steps:

  1. Realign for business transformation
    Operational changes are usually required to move the business model and the tax plan into harmony. Defining a new operating model to improve operating margins and grow revenues in a tax compliant manner can generate increased after-tax earnings and enhanced cash flows. Shifting components of the physical value chain to more tax-efficient jurisdictions is part of the solution, as is the strategic relocation of intellectual property.
  2. Reconfigure Information Technology (IT) systems
    As governance structures, supply chains, and other parts of an enterprise realign to capture more value, the information systems that support those functions must evolve as well. As a result, the IT systems should be reconfigured to support the new operating model. In addition, the IT function is itself a source of potential new efficiency through centralisation, shared service centres, and economies of scale.
  3. Readying human resources
    BMO initiatives have human capital implications across the organisation. After all, moving functions and risks means moving people, and that can trigger leadership challenges, potential disruption to the business, and loss of talent. These challenges, which can also create opportunities, need to be managed carefully with a command and control project management structure, strong communication plans, and dynamic change management.
  4. Re-organise legal, finance, and tax structure
    BMO goes beyond narrowly defined tax questions, but those questions remain at the heart of any worthwhile solution. A new legal structure and transaction flows often result from a BMO transformation as a means of managing tax and trade risks in the local countries as the legal entity structure aligns with the new operating model. Finance aspects, cash flows, and customs duties and other indirect tax implications of the new business model need to be considered within the new management and reporting structure.

Benefits to your organisation

The risks inherent in the mining industry present unique opportunities for companies to reduce their effective tax rate. This can be done by aligning the supply chain in a tax efficient manner. Furthermore, careful consideration of the business model can overcome additional economic and regulatory challenges, such as liquidity shortages and withholding taxes.

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Transfer Pricing

Challenges mining companies face

The mining industry poses some very specific challenges from a transfer pricing point of view. South African mining groups are often involved at more than one level in the supply chain. For example, the group may both mine and beneficiate the commodity in South Africa. This can make it very difficult to evaluate the profitability of the South African entity or entities.

In this scenario, it is also necessary to determine the value on which the Mining Royalty will be paid. Companies would wish, as far as possible, to pay on the value of the commodity before any beneficiation.

The global footprint of many multinationals in the mining industry also presents challenges. It is necessary to consider the pricing of sales to group companies in multiple parts of the world. This is likely to mean that the pricing policies are very complex.

Meeting documentation requirements in multiple jurisdictions is also onerous.

A specific problem for ventures into Africa is the wide range of withholding taxes imposed by many African governments

How does the Deloitte solution address the business issue?

The Deloitte Transfer Pricing team is part of a global team which has consistently had the highest number of individuals (including individuals from South Africa) rated in the Euromoney Guide to the World’s Leading Transfer Pricing Advisers. The South African team has extensive experience in preparing OECD compliant documentation, which satisfies the requirements of SARS and is readily adaptable to the requirements of other countries.

We have extensive experience in the mining industry. Apart from substantial documentation projects, our assignments have included the following:

  • Benchmarking the sale to Europe of a valuable by-product from mining operations
  • Working together with colleagues in the UK and Canada to secure an advance pricing agreement (APA) between the authorities of those two countries
  • Advising on the South African transfer pricing implications of a significant restructuring of the supply chain of a commodity mined in South Africa.

The benefits of using the SA TP team are as follows:

  • A cutting edge SA practice with access to a world-wide range of specialists in the mining industry
  • A proven record of successful and constructive negotiations with SARS and with revenue authorities in other African countries (most recently, Botswana and Malawi)
  • Extensive experience in the mining industry.

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