14 th Americas School of Mines

Transcription

1 Mining Taxes John Gravelle Steve Ralbovsky Roberto Carlos Rivas

2 Agenda Tax and Royalty Payments as Part of Sustainability Panel Discussion/Questions/Comments: Should paying your fair share of taxes be part of sustainability? Impact of Higher Taxes and Royalties on the Mining Industry Panel Discussion/Questions/Comments: Impact of tax and royalty policies on the mining industry

3 Tax and Royalty Payments as Part of Sustainability Paying your fair share has become more and more part of the debate around sustainability Fair is obviously a relative term Taxes, royalties and all payments to government should be considered Slide 3

4 Tax and Royalty Payments as Part of Sustainability Mining tax and royalty systems should be designed to serve multiple purposes Encourage investment in the country Yield a fair return to the citizens of the host country Send a message to potential future investors that this is a reasonable place to do business Slide 4

5 Tax and Royalty Payments as Part of Sustainability No two countries or ore bodies are alike There will have to be adjustments for realities Countries might negotiate to attract jobs Companies might pay more for a rich mineral reserve Slide 5

6 Tax and Royalty Payments as Part of Sustainability Disclosure is important information in framing the debate Many mining companies support this effort through voluntary disclosure ICMM (International Council on Mining & Metals) supports economic development of host communities as a core value 50 corporate supporters of the Extractive Industries Transparency Initiative (EITI) Slide 6

7 Tax and Royalty Payments as Part of Sustainability Mining companies often publish their own statistics To demonstrate support for this type of disclosure, in general To increase public awareness of all of the funds a company pays into a local economy Slide 7

8 Total Tax Contribution PwC s Total Tax Contribution (TTC) studies of the Global Mining Industry show that income taxes are less than half the story when considering what mining companies pay to government TTC is a methodology whereby all the taxes and government payments made by a company are collected Slide 8

9 Tax and Royalty Payments as Part of Sustainability PwC has performed two (2) TTC studies for the Global Mining Industry Our most recent study (2008 data) showed that income taxes are only 40% of the total amount paid to the government by the companies participating in the study The other 60% was comprised of royalties, non-income taxes and other payments to the government that appear above the line in the companies financial statements Slide 9

10 Tax and Royalty Payments as Part of Sustainability The debate has been expanded to include required disclosure of tax and royalty payments Slide 10

11 Tax and Royalty Payments as Part of Sustainability Publish what you pay (PWYP) Global civil society coalition seeking to hold governments of resource rich countries accountable PWYP calls for disclosure of ALL taxes and royalties paid to any government on a project-by-project basis Potential for PWYP to be added to IFRS Proposal in the Draft Discussion Paper regarding extractive industries Slide 11

12 Tax and Royalty Payments as Part of Sustainability Extractive Industries Transparency Initiative (EITI) Disclosure from a country perspective More developed countries support Disclosure sought from less developed countries Slide 12

13 Tax and Royalty Payments as Part of Sustainability Hong Kong stock exchange disclosure requirements Hong Kong stock exchange requires information...in respect of tax, royalties and other significant payments on a country-bycountry basis. for new applicants if relevant and material Some are claiming this is essentially requiring PWYP type disclosure Slide 13

14 Tax and Royalty Payments as Part of Sustainability US Dodd-Frank Financial Reform Bill requirements of disclosure Requires extractive industry SEC registrants to disclose payments of federal income taxes and royalties paid to governments Regulations will be written over the next several months Many practicalities to be addressed Slide 14

15 Tax and Royalty Payments as Part of Sustainability Panel Discussion/Questions/Comments: What role should paying your fair share of taxes play with regard to sustainability? Slide 15

16 Framing the debate Countries Want Companies Want Maximum revenue for citizens Encourage future investment Maximum profits for shareholders Social license to continue operating Slide 16

17 Income taxes are typically the primary way a government collects revenue Mining royalties are another way governments collect revenue Mining and other non-income taxes are also a way to collect revenues Slide 17

18 The financial crisis of the past couple of years has strained governmental budgets Increasing taxes and levies on mining companies is often viewed as a way for financially struggling governments to collect more revenue Slide 18

19 Other crisis, such as the earthquake in Chile, also put financial strains on governments Increasing taxes and levies on mining companies is sometimes viewed as a way of increasing government take for this as well Slide 19

20 There are business consequences to raising taxes and levies on mining companies Singling out one or two industries can often be controversial, and sometimes the industries react. Mongolia 68% windfall profits tax enacted in 2006, repealed in 2009 Halted further development of deposits (Centerra, Ivanhoe, Rio Tinto) In 2006, exploration spending dropped 50% from $120m in 2005 Compared to 46% increase in Canada Fell from #33 to #62 out of 65 regions for attractiveness to miners (Fraser Institute) Zambia 25% windfall profits tax proposed in 2008, but not enacted due to the global financial crisis and weak metals prices Slide 20

21 Companies want certainty South Africa Black Economic Empowerment (BEE) initiative 26% carried interest held by Historically Disadvantaged South Africans by 2014 In 2009, only 8.9% BEE ownership compared to target of 15% New mining charter announced on Sept. 14, month moratorium on applications for new mining licenses Fraser Institute ranking from 37 out of 64 in 2005, to 61 out of 72 in 2010 In 2000, SA was global leader in gold production overtaken by China in 2006 by 2009, SA is fourth (behind China, Australia and US) Slide 21

22 Australia is a real life example of trying to raise taxes on a limited segment of taxpayers Here is PwC Australia tax partner Wayne Huf to update us all with respect to Australia Slide 22

23 Chile has also proposed raising its levies on the mining industry (not exclusively) This time, within the context of national emergency Slide 23

24 Chile is a mining country Big mining in Chile is mature, efficient and profitable Industry contribution to collected taxes is huge Key taxes: income taxes (two tiers), specific mining tax, collection of third parties taxes (employment tax), etc. Economic contributions to local communities are relevant As well, highest employment income at national level Slide 24

25 May 2010: Pro-reconstruction bill was approved (without the originally proposed mining royalty changes) Temporary increase of CIT: 20%, 18.5% and back to 17% rate New bill just sent to Congress on Mining Royalty tax Slide 25

26 Mining Royalty Modification Sales* Current Situation Government Project to Over Rate: Progressive based on the sales (0.5% to 4.5%) -Tax Base: Taxable Operational Mining Income -Rate: Fix of 5% -Tax Base: Taxable Operational Mining Income -Rate: Progressive based on the sales (0.5% to 4.5%) -Tax Base: Taxable Operational Mining Income -Rate: Progressive, based on the Operational Mining Margin (5% to 9%) -Tax Base: Taxable Operational Mining Income *The unit used to measure the sales volume of every mineral is its equivalent in metric tones of cooper Slide 26

27 Most Big Mining enterprises have fiscal stability agreements in force regarding mining royalty regime Government is inviting them to apply, voluntarily and for a 3 year period, proposed new rules Extension of stability regimes for further 8 years Opposition coalition: duplicate the proposed tax increase no extension of fiscal stability regimes; to repeal them reform of the Foreign Investment Statute Slide 27

28 Mining understood the original collection needs. But, a collection race on mining has already started Politics is now at stage; problem Important mining investments might be re-evaluated (advance, postpone or cancelled) Slide 28

29 South Africa recently put in force the mining royalty increase it enacted in 2008 The effective date was delayed until March 2010 in reaction to the global financial crisis Slide 29

30 Mining is very important to the South African economy Approximately 8% of gross domestic product currently Industry is the largest employer in South Africa Precious metals contributed 65% of South Africa s mineral export earnings and 21% of total exports of goods (2006 data) Slide 30

31 Application of the Act New royalty scheme was scheduled for implementation on May 1, 2009 Delayed until March 1, 2010 in reaction to the global economic crisis Royalty capped at 5% of gross sales for refined minerals 7% of gross sales for unrefined minerals Slide 31

32 Actual impact still being assessed One survey impact will increase total government revenue by 0.1% Industry estimates: 2004 s 14% profits would have been reduced by 2-2.6% by the Royalty Act Royalty increases as profits increase When profits are above 30% (which they were in 2008), impact is significant (approaching 5%) The industry is more sensitive to royalties on gross income Costs often do not drop commensurate with drops in commodity prices Slide 32

33 Many countries are contemplating, or have enacted, increased mining royalties or taxes Look for the uncertainty alone to discourage investment Slide 33

34 Panel Discussion/Questions/Comments: What is the impact of changing tax and royalty policies on the mining industry? Slide 34

35 Thank you. Thank you. Steve Ralbovsky +1 (602) Jaime Andrade Roberto Carlos Rivas +(56) [email protected] Wayne Huf +61 (8) [email protected] John Gravelle +1 (416) [email protected] 2010 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.