6 November 2023 OECD published a transfer pricing framework on determining the price of minerals. The framework provide guidance for developing countries to accurately delineate the transaction and price mineral sales on an arm’s length basis. Specifically, it identifies the primary economic factors that influence the pricing of minerals using transfer  pricing principles. In particular the guidance offers a framework on how to use transfer pricing principles to apply the Comparable Uncontrolled Price method, including identifying the primary economic factors that influence the price of minerals (“mineral pricing framework”) to ensure that developing countries are able to tax mineral exports appropriately. The first section of the practice note sets out a high-level summary of the mining value chain and identifies areas where related-party transactions could pose a risk to tax revenues by taxpayers inappropriately applying the arm’s length principle or not applying it at all. The second section of the practice note specifically addresses transfer pricing risks associated with mineral pricing. OECD TP framework - Pricing of Minirals ...

Poltova GZK is a Ukrainian subsidiary of the Ferrexpo group – the world’s third largest exporter of iron ore pellets. In FY 2015 the iron ore mined in Ukraine by Poltava GZK was sold to other companies in the group – Ferrexpo Middle East FZE, and the transfer prices for the ore was determined by application of the CUP method using Platts quotations. However, according to the tax authorities Poltava GZK used Platts quotations for pellets with a lower iron content when pricing the higher quality pellets, resulting in non arm’s length prices for the controlled transactions and lower profits in the Ukraine subsidiary. The tax authorities also found that Poltava GZK had overestimated the cost of freight – in the case of actual transportation of pellets by ships of different classes (“Panamax”, “Capesize”), the adjustment of the delivery conditions was carried out only at the maximum rate. On that basis an assessment was issued. Not satisfied with the assessment an appel was filed Poltova GZK, and in 2019 the Administrative Court and later the Court of Appeal set aside the assessment of the tax authorities. An appeal was then filed by the tax authorities with the Supreme Court. Judgement of the Supreme Court The Supreme Court partially annulled the decision of the Administrative Court and Court of Appeal and ruled predominantly in favor of the tax authorities approving the position that the transfer prices of the iron ore pellets did not correspond to the arm’s length price. The Court confirmed the validity of the tax assessment and the legality of the issued tax notice-decision regarding the reduction of the negative taxable income in an amount of 1.3 billion hryvnias (~$35 millions).  The Court confirmed that the taxpayer did not take into account the actual properties of the products specified in the Quality Certificates, namely: the content of impurities (silicon dioxide) and the moisture level when pricing the controlled transactions. The court confirmed that the constant fluctuation of prices on the market of iron ore pellets is not a basis for comparing prices in CU with the average indicator in comparable operations for a certain period (month) without constructing a price range. Also, the taxpayer had overestimated the cost of freight. Click here for English translation Click here for other translation Ukrain vs PrJSC Supreme Administrative Court case no 440-1053-19 ...

78. Company A owns a government licence for a mining activity and a government licence for the exploitation of a railway. The mining licence has a standalone market value of 20. The railway licence has a standalone market value of 10. Company A has no other net assets. 79. Birincil, an entity which is independent of Company A, acquires 100% of the equity interests in Company A for 100. Birincil’s purchase price allocation performed for accounting purposes with respect to the acquisition attributes 20 of the purchase price to the mining licence; 10 to the railway licence; and 70 to goodwill based on the synergies created between the mining and railway licences. 80. Immediately following the acquisition, Birincil causes Company A to transfer its mining and railway licences to Company S, a subsidiary of Birincil. 81. In conducting a transfer pricing analysis of the arm’s length price to be paid by Company S for the transaction with Company A, it is important to identify with specificity the intangibles transferred. As was the case with Birincil’s arm’s length acquisition of Company A, the goodwill associated with the licences transferred to Company S would need to be considered, as it should generally be assumed that value does not disappear, nor is it destroyed as part of an internal business restructuring. 82. As such, the arm’s length price for the transaction between Companies A and S should take account of the mining licence, the railway licence, and the value ascribed to goodwill for accounting purposes. The 100 paid by Birincil for the shares of Company A represents an arm’s length price for those shares and provides useful information regarding the combined value of the intangibles ...

Mining Corp had deducted interest payments on an intra-group syndicated loan of $200.000.000 of which it stated an amount of $94,500,000.00, had been used, that is, a part of the syndicate $200,000,000.00, which was the subject of the loan, had been used to prepay the same loan for $65,000,000.00 and $29,500,000.00. Following an audit the tax authorities issued an assessment where, among other issued, deductions of interest payment on the loan had been adjusted. According to the tax authorities the accounting record of the credit or income from financing or the Cash Flow Statement was not sufficient to support the financial expenditure, especially if this does not demonstrate the movement of the money and its use in acquisitions, payments to third parties and other activities related to the line of business. In order to prove the use of the resources obtained, it was necessary to have the supporting documentation to prove the use of the resources obtained, and verify the link of the financing with the obtaining of taxable income or the maintenance of the source, such as a permanent control of fixed assets that would allow to verify the investments made in such item, investment plans and/or projects, contracts that accredit the investments made or loans made to its related parties, sample analyses documented with payment vouchers that support such acquisitions, among others, which has not occurred in the present case. In the audit of the current financial year 2009, the company had indicated that the loan was used for: (i) loans to subsidiaries and related parties for $149 379 000.00, (ii) time deposits for $33 753 884.00, and (iii) prepayments of the principal debt for $100 000 000.00 totalling $283 132 884.00; however, in this regard the Administration left the following observations: The earmarked amount of $283 132 884.00 exceeds the loan amount of $200 000 000.00. Despite the fact that this is the same loan is observed in the audit of the 2008 financial year, the purposes supported by the appellant are different. According to the tax authorities The loans to subsidiaries and related parties are only supported by the audited financial statements for 2009; however, no documents are presented to prove that the transfers were made to the aforementioned companies during the 2008 financial year, nor have the contracts for the loans with related parties been presented, nor have the reasons for these loans been indicated. For the fixed-term deposits, it shows a table of the deposits made, indicating the balances at the end of 2009; however, the balance of the statement of account sent by magnetic media does not coincide with this balance; furthermore, it did not document the link between the loan received and the deposit received in the bank. For the prepayments to the principal debt made on June 2, 2009, he did not document that after almost one (1) year of having received the loan, it is the same money that was indebted, which serves for the prepayment of the same. That for this reason, the Administration observed the amount of S/8,718,744.83 as it considered that the financial expenses generated by the loan received were not deductible, as there was no documentary evidence of their use for the company’s investments. An appeal was filed by Mining Corp. Judgement of the Tax Court The Tax Court revoked the appealed decision and order the Administration to recognise the deduction of the expenses for non-domiciled withholdings related to the financial charges related to the amount of S/428,298.27 and the proportional part of the $100,000,000.00, as established in the resolution, confirming it in the rest of the points of the present objection.. Excerpts “That, as stated by this Court in Resolutions No. 10813-3-2010 and 13080-9-201O, among others, the so-called “causality principle” is the relationship between the expenditure and the generation of taxable income or the maintenance of the producing source, i.e., all expenses must be necessary and linked to the activity carried out, a notion that must be analysed considering the criteria of reasonableness and proportionality, according to the nature of the operations carried out by each taxpayer. In accordance with the criteria adopted by this Court in Resolutions Nº 02607-5-2003 and 08318-3-2004, for an expense to be considered necessary there must be a causal relationship between the expenses incurred and the income generated, and therefore the necessity of the expense must be assessed in each case and, likewise, in Resolution Nº 06072-5-2003 it was established that it is necessary to analyse whether the expense is duly supported by the corresponding documentation and whether its use is accredited. That in the present case, it can be seen that the Administration has concluded that the non-domiciled Income Tax that the appellant assumed is not deductible, inasmuch as it did not support the causality of the financial expenses that originated the payment of said tax, according to the principle of causality contained in article 37 of the Income Tax Law. It is clear from the foregoing that the Administration refused the deduction made by the appellant on the grounds that the latter had not substantiated the causality of the financial charges repaired in the proceedings; However, this instance has concluded that the assessment for financial charges related to the syndicated loan for $30,000,000.00 is not in accordance with the law, and that the financial expenses related to the amortisation of $100,000,000.00 are only partially deductible; consequently, the position put forward by the Administration to maintain this assessment is unfounded and, consequently, it is appropriate to lift this assessment. As for the non-domiciled income tax that the appellant assumed in relation to the syndicated loan obtained of $200,000,000.00, in the part whose causality was not supported, it should be noted that the appellant alleges that it was directly liable for the payment of the interest, under Article 47 of the Income Tax Law, and that therefore the tax assumed corresponding to third parties was deductible as an expense. In this regard, article 47 of the Income Tax Law regulates ...

Glencore Australia (CMPL) sold copper concentrate produced in Australia to its Swiss parent, Glencore International AG (GIAG). The tax authorities found, that the price paid by Glencore International AG to Glencore Australia for the copper concentrate in the relevant years according to a price sharing agreement was less than the price that might reasonably be expected to have been paid in an arm’s length dealing between independent parties. The tax assessment was brought to court by Glencore. The Federal Court of Australia found in favor of Glencore. The ruling of the Federal Court was appealed by the Australian tax authorities. On 6 November 2020, a Full Federal Court in a 3-0 ruling dismissed the appeal of the tax authorities. The tax authorities then submitted a application for special leave to the High Court. This application was dismissed by the Court in a judgement issued 20. May 2021. Click here for translation Australia vs Glencore 2021 ...

Cameco, together with its subsidiaries, is a large uranium producer and supplier of the services that convert one form of uranium into another form. Cameco had uranium mines in Saskatchewan and uranium refining and processing (conversion) facilities in Ontario. Cameco also had subsidiaries in the United States that owned uranium mines in the United States. The Canadian Revenue Agency found that transactions between Cameco Corp and the Swiss subsidiary constituted a sham arrangement resulting in improper profit shifting. Hence, a tax assessment was issued for FY 2003, 2005, and 2006. Cameco disagreed with the Agency and brought the case to the Canadian Tax Court. In 2018 the Tax Court ruled in favor of Cameco and dismissed the assessment. This decision was appealed by the tax authorities to the Federal Court of Appeal. The Federal Court of Appeal in 2020 dismissed the appeal and also ruled in favor of Cameco A application for leave to appeal from the judgment of the Federal Court of Appeal was then brought to the Canadian Supreme Court by the tax authorities. The application for leave to appeal was dismissed by the Supreme Court. 39368_Cameco_Judgment_on_Leave-Jugement_sur_demande ...

The Oyu Tolgoi copper-gold mine is a joint venture between Turquoise Hill Resources (which is 50.8 per cent owned by Rio Tinto), and the Mongolian Government. The Mongolian government has not been satisfied by the result of the joint venture and has concerns that increasing development costs of the Oyu Tolgoi project has eroded the economic benefits it anticipated receiving. “It is calculated that Mongolia will not receive dividend payments until 2051 and will incur debts of US$22 billion,” said Mongolia’s deputy chief cabinet secretary, Solongoo Bayarsaikhan. “In addition, Oyu Tolgoi is estimated to pay profit taxes or corporate income taxes only in four years until 2051.” The Mongolian authorities has put forward proposals to coordinate and lower management services received from Rio Tinto and increase Mongolia’s benefits by reducing shareholder loan interest rates. On December 23, 2020 the Mongolian Tax Authority issued a press release concerning the results of a completed transfer pricing audit of Oyu Tologi LLC. “The Mongolian Tax Authority has recently completed an audit of Oyu Tolgoi LLC’s 2016-2018 tax returns and identified a number of violations and breaches of relevant laws and the International Rules. As a result, Oyu Tolgoi LLC was notified of MNT 649.4 billion (approximately US$228 million) of additional taxes, inclusive of penalty and default interests, that are due to be paid in cash to the Government of Mongolia. In addition, the MTA has reduced Oyu Tolgoi LLC’s operating loss carry forward balance by MNT 3.4 trillion (approximately US$ 1.2 billion). The Mongolian Tax Authority concluded that certain transactions between Oyu Tolgoi LLC and Rio Tinto and its affiliates were not done at an arm’s length basis and were in violation of the International Rules. Accordingly, the value of such transactions was adjusted, for tax purposes, to reflect the actual value that would have been paid had the transactions occurred between unrelated parties dealing at an arm’s length basis. Major adjustments were made to a series of transactions between Oyu Tolgoi LLC and affiliated entities of Rio Tinto whereby economic value was transferred.” The 2016-2018 audit of Oyu Tologi LLC follows up on a previous assessment for FY 2013-2015. According to an announcement from Turquoise Hill Resources, the previous assessment has now been referred to international arbitration. Turquoise Hill Mongolia 2020-12-23-trq-nr ...

Glencore Australia (CMPL) sold copper concentrate produced in Australia to its Swiss parent, Glencore International AG (GIAG). The tax administration found, that the price paid by Glencore International AG to Glencore Australia for the copper concentrate in the relevant years according to a price sharing agreement was less than the price that might reasonably be expected to have been paid in an arm’s length dealing between independent parties. ‘The amended assessments included in the taxpayer’s assessable income additional amounts of $49,156,382 (2007), $83,228,784 (2008) and $108,675,756 (2009) referable to the consideration which the Commissioner considered would constitute an arm’s length payment for the copper concentrate sold to Glencore International AG in each of the relevant years. The Federal Court of Australia found in favor of Glencore. “Accordingly I find that the taxpayer has established that the prices that CMPL was paid by GIAG for the copper concentrate it supplied to GIAG under the February 2007 Agreement were within an arm’s length range and accordingly the taxpayer has discharged the onus of proof on it.” “In view of my conclusions, the objection decisions should be set aside and the amended assessments for the 2007, 2008 and 2009 income years set aside.“ The ruling of the Federal Court was appealed by the Australian tax authorities. On 6 November 2020, a Full Federal Court in a 3-0 ruling dismissed the appeal. Australia vs Glencore November 2020 ...

On 23 September 2020, the Federal Administrative Court in Mexico issued a not yet published decision in a dispute between the Mexican tax authorities (SAT) and Canadian mining group First Majestic Silver Corp’s Mexican subsidiary, Primero Empresa Minera. The court case was filed back in 2015 by the tax authorities, to cancel an Advance Pricing Agreement (APA) issued to Primero Empresa Minera back in 2012. According to the APA, a methodology had been determined allowing the Mexican mining company to sell silver at 4.04 dollars per ounce to a group company based in Barbados (Silver Trading Barbados Ltd) via Luxembourg, when the average market price of silver was above 30 dollars. The APA was applied by Primero Empresa Minera for FY 2010 – 2014. The Federal Court decided in favor of the tax authorities that the APA was invalid and therefore nullified. After receiving the decision from the Federal Court, First Majestic on 25 September 2020 issued a press release stating that “the Federal Court’s decision was not arrived following regular procedures, was undertaken hastily, and did not provide opportunity for the presentation of evidence from PEM. In addition, the decision is inconsistent with previous legal precedents and violates the Federal Mexican Constitution. The Company continues to assess all of its legal options, both domestic and international including under the North American Free Trade Agreement, and will make additional updates, when necessary, on its legal plan of action.“ In a later press release dated 11 November 2020 it was announced that First Majestic intended to appeal the decision to the Circuit Court prior to the December 1, 2020 deadline. Prior to receiving the court’s decision, First Majestic had stated that, SAT illegally chose to ignore the legal existence of an advance pricing agreement and that to address the  unjustified conduct of the authorities the group would issue a notice of intent to submit a claim (notice) under the provisions of Chapter 11 of NAFTA trade agreement. This notice of intent was published in may 2020 . According to the notice, the amount of compensation to be claimed in the arbitration proceedings has been estimated by a minimum amount of $500 million, in addition to any applicable interest, costs and expenses of the arbitration proceedings. In a later press release from 10 March, First Majestic elaborates further on the case and background ...

AFRICAN BARRICK GOLD PLC (now Acacia Mining Plc), the largest mining company operating in Tanzania, was issued a tax bill for unpaid taxes, interest and penalties for alleged under-declared export revenues. As a tax resident in Tanzania, AFRICAN BARRICK GOLD was asked to remit withholding taxes on dividend payments amounting to USD 81,843,127 which the company allegedly made for the years 2010, 2011, 2012 and 2013 (this sum was subsequently reduced to USD 41,250,426). AFRICAN BARRICK GOLD was also required to remit withholding taxes on payments which the mining entities in Tanzania had paid to the parent, together with payments which was made to other non-resident persons (its shareholders) for the service rendered between 2010 up to September 2013. AFRICAN BARRICK GOLD argued that, being a holding company incorporated in the United Kingdom, it was neither a resident company in Tanzania, nor did it conduct any business in Tanzania to attract the income tax demanded according to the tax assessment issued by the tax authorities. In 2016, the Tax Revenue Appeals Tribunal upheld the assessment issued by the tax authorities. AFRICAN BARRICK GOLD then filed an appeal to the Court of Appeal. Judgement of the Court of Appeal The Court dismissed the appeal of AFRICAN BARRICK GOLD and upheld the assessment issued by the tax authorities. Excerpts “In light of our earlier finding that the appellant is a resident company with sources of mining income from its mining entities in Tanzania, this ground need not detain us long. We shall dismiss this ground because assignment of TIN and VRN registration numbers are legal consequences of the appellant’s tax residence in Tanzania. From the premise of our conclusion that the appellant became a resident company from 11th March 2010 when it was issued with a Certificate of Compliance for purposes of registering its place of business in Tanzania, the appellant had statutory obligation to apply to the respondent for a tax identification number within 15 days of beginning to carry on the business.” “We shall not trouble ourselves with the way the Board and the Tribunal interchangeably discussed “tax avoidance” and “tax evasion” while these courts were determining the salient question as to whether the dividend the appellant received from its Tanzanian entities and which was paid out to the appellant’s shareholders abroad was subject to withholding tax. As we pointed earlier, neither the Board nor the Tribunal made any actionable criminal finding against the appellant in respect of tax evasion. Otherwise, we agree with Mr. Tito in his submission that since the dividend which the appellant paid to its foreign shareholders had a source in the United Republic in terms of section 69(a) of the ITA 2004, the appellant had a statutory duty under section 54(1)(a) of the ITA 2004 to withhold tax from such dividends. Because the appellant failed to withhold that tax, the appellant is liable to pay that withholding tax in terms of sections 82(l)(a)(b) and 84(3) of the ITA 2004.” Click here for translation ocr-civil-appeal-no-144-2018-african-barrick-gold-plcappellant-versus-commissioner-general-tra-respo ...

Mantra Limited is engaged in mineral exploration in Tanzania. In carrying out its business, it procured services from non-resident service providers mostly from South Africa. In 2014, Mantra Limited wrote to the tax authorities requesting for a refund of withholding taxes of USD 1,450,920.00 incorrectly paid in relation to services that were performed outside Tanzania by non-resident service providers for the period between July, 2009 and December, 2012. The tax authorities refused the request maintaining that, the services in question were rendered in Tanzania and Article 7 of the DTA was irrelevant in as much as it was limited to business profits and not business transactions. Unsuccessfull appeals were filed by Mantra and in 2020 the case ended up in the Court of Appeal where Mantra argued based on the following grounds:- 1. That the Tax Revenue Appeals Tribunal grossly erred in law by holding that the Board was correct in holding that payments for services rendered/ performed abroad by non-resident suppliers had a source in the United Republic of Tanzania; 2. That the Tax Revenue Appeals Tribunal grossly erred in law by holding that Article 7 of the Double Taxation Agreement does not apply on the Appellant’s case; and 3. That the Tax Revenue Appeals Tribunal erred in law by holding that the Appellant was not justified to claim refund o f incorrectly paid withholding tax. Judgement of the Court of Appeal The Court of Appeal decided in favor of the tax authorities. On the first ground “On our part, we fully subscribe to this recent position of law and differ with the previous position in Pan African Energy Tanzania Limited (supra) for two main reasons. First, as correctly held in Tullow Tanzania BV (supra), the respective authority, much as it was based on an Indian decision construing a statute which is not worded similarly to ours, is istinguishable and thus inapplicable in the instant case. Second and more importantly is the fact that, the position in Tullow Tanzania BV (supra) is the more recent position. The settled position as it stands today is such that, where there are two conflicting decisions of the Court on the similar matter, the Court, unless otherwise justified, is expected to follow the more recent decision. … In view of the foregoing discussion therefore, we dismiss the first ground of appeal. “ On the second ground “Guided by the above authority therefore, it is our firm opinion that the Tribunal was right in holding that the exemption under Article 7 of the DTA was not applicable to the appellant’s business transactions. We thus dismiss the second ground for want of merit.” On the third ground “Since we have held in relation to the first and second grounds that, the charging of withholding taxes was correct, there is consequently nothing to refund and, therefore, the third ground becomes redundant because there remains no withholding tax to refund.” Mantra Tanzania Ltd vs The Commissioner General Tanzania Revenue Authority (Civil Appeal No 430 of 2020) 2021 TZCA 657 (5 November 2021) ...

JSC Atomredmetzolo (ARMZ) is a Company incorporated in the Russian Federation dealing in uranium mining industry. Late 2010, the Company purchased from the Australia Stock Exchange all shares in Mantra Resources Limited (Mantra Resources) a company incorporated in Australia and owner of Mkuju River Uranium project located Tanzania. Following the acquisition of all the issued shares in Mantra Australia, JSC Atomredmetzolo became a sole registered and beneficiary owner of shares in Mantra Australia making Mantra Australia a wholly owned subsidiary of JSC Atomredmetzolo. Hence Mantra Tanzania and Mkuju River Uranium Project were placed under the control of JSC Atomredmetzolo who had a majority 51.4% shareholding in a Canadian Uranium exploration and mining company named Uranium One Inc. Thus, JSC Atomredmetzolo opted to invest in the Mkuju River Uranium project through Uranium One based in Canada. Subsequently, JSC Atomredmetzolo entered into a put/call option agreement with Uranium One, pursuant to which JSC Atomredmetzolo sold and transferred the shares it had acquired in Mantra Australia to Uranium One for a consideration equal to JSC Atomredmetzolo acquisition costs of the scheme shares. This was viewed by the tax authorities as acquisition of shares by JSC Atomredmetzolo in Mantra Australia which resulted into acquisition of interest in Mantra’s Core asset, that is, Mkuju River Uranium project located in Tanzania, because the subsequent sale and transfer of the said shares to Uranium One was a realization of interest in the Mkuju River Uranium project by JSC Atomredmetzolo. In that regard, the tax authorities concluded that, the said transaction was subject to taxation in Tanzania. As such, the tax authorities in November 2011 notified JSC Atomredmetzolo on existence of tax liability of USD 196,000,000/= assessed on investment income because the income earned has a source in Tanzania since the transaction involved a domestic asset. In addition, on account of conveyance of the domestic asset in question, the tax authorities also required JSC Atomredmetzolo to pay Stamp Duty which was assessed at USD 9,800,000. This made JSC Atomredmetzolo lodge two appeals to the Tax Revenue Appeals Board contesting the liability to pay the taxes. In a judgment handed down on 15th May 2013, the Board determined in favour of JSC Atomredmetzolo. This decision was later upheld by the Tax Revenue Appeals Tribunal in its ruling of december 2013. The tax authorities then brought to the Court of appeal. Judgement of the Court of Appeal. The Court nullified the decisions from the previous instances, due to lack of legal jurisdiction. Excerpt “In the case at hand, since the appellant’s letter in question constituted notice on existence of liability to pay income tax to the respondent, it was illegal to seek remedy of an appeal before the Board which is statutorily barred to entertain appeals relating to tax assessment under the provisions of section 7A of the TRAA. Therefore, the Board had no jurisdiction and it embarked on a nullity to entertain the respondent’s appeals. Similarly, it was illegal for the Board to entertain the respondent’s appeal on stamp duty because the respective tax dispute resolving mechanism initially requires the dispute to be adjudicated by the Stamp Duty Officer and the appeal therefrom lies to the Commissioner and finally a reference may be made to the Board. Thus, as it was the case on the income tax dispute, the Board illegally entertained the respondent’s appeal on stamp duty and what ensued thereafter is indeed a nullity. We are fortified in that account because jurisdiction is a creature of statute and as such, it cannot be assumed or exercised on the basis of the likes and dislikes of the parties.” “On the way forward, we invoke our revisional jurisdiction under the provisions of section 4 (3) of the AJA to nullify the proceedings and judgments of the Board and the Tribunal because the first appeal stemmed from null proceedings.” Click here for translation consolidated-civil-appeals-nos-78-79-2018-commissioner-general-tanzania-revenue-authorityappellant ...

Cameco, together with its subsidiaries, is a large uranium producer and supplier of the services that convert one form of uranium into another form. Cameco had uranium mines in Saskatchewan and uranium refining and processing (conversion) facilities in Ontario. Cameco also had subsidiaries in the United States that owned uranium mines in the United States. In 1993, the United States and Russian governments executed an agreement that provided the means by which Russia could sell uranium formerly used in its nuclear arsenal. The net result of this agreement was that a certain quantity of uranium would be offered for sale in the market. Cameco initially attempted to secure this source of uranium on its own but later took the lead in negotiating an agreement for the purchase of this uranium by a consortium of companies. When the final agreement was signed in 1999, Cameco designated its Luxembourg subsidiary, Cameco Europe S.A. (CESA), to be the signatory to this agreement. The agreement related to the purchase of the Russian uranium was executed in 1999 among CESA, Compagnie Générale des Matières Nucléaires (COGEMA) (a French state-owned uranium producer), Nukem, Inc. (a privately owned United States trader in uranium), Nukem Nuklear GMBH and AO “Techsnabexport” (Tenex) (a Russian state-owned company). This agreement, which is also referred to as the HEU Feed Agreement, initially provided for the granting of options to purchase the uranium that Tenex would make available for sale. In the years following 1999, there were a number of amendments to this agreement. In particular, the fourth amendment in 2001, in part, obligated the western consortium (CESA, COGEMA and Nukem) to purchase a certain amount of uranium (paragraph 82 of the reasons). On September 9, 1999, CESA entered into an agreement with Urenco Limited (Urenco) (a uranium enricher) and three of its subsidiaries to purchase uranium that Urenco would be receiving from Tenex. Also in 1999, Cameco formed a subsidiary in Switzerland. This company, in 2001, changed its name to Cameco Europe AG (SA, Ltd) (CEL). In 2002, CESA transferred its business (which was described in the transfer agreement as “trading with raw materials, particularly uranium in various forms”) to CEL under the Asset Purchase and Transfer of Liabilities Agreement dated as of October 1, 2002, but executed on October 30, 2002. Therefore, CESA transferred to CEL the rights that CESA had to purchase uranium from Tenex and Urenco. CEL also purchased Cameco’s expected uranium production and its uranium inventory. It would appear that this arrangement did not include any uranium that was sold by Cameco to any customers in Canada (paragraph 40 of the Crown’s memorandum). At certain times, Cameco also purchased uranium from CEL. The profits in issue in this appeal arose as a result of the sale of uranium by CEL that it purchased from three different sources: Tenex, Urenco, and Cameco. When the arrangements with Tenex and Urenco were put in place in 1999, the price of uranium was low. In subsequent years, the price of uranium increased substantially. As a result, the profits realized by CEL from buying and selling uranium were substantial. The Canadian Revenue Agency found that the transactions between Cameco Corp and the Swiss subsidiary constituted a sham arrangement resulting in improper profit shifting.  According to the Canadian Revenue Agency, Cameco would not have entered into any of the transactions that it did with CESA and CEL with any arm’s length person, cf. paragraph 247(2) of the Act. All of the profit earned by CEL should therefore be reallocated to Cameco Corp. Hence, a tax assessment was issued for FY 2003, 2005, and 2006 where $43,468,281, $196,887,068, and $243,075,364 was added to the taxable income of Cameco Canada. Cameco disagreed with the Agency and brought the case to the Canadian Tax Court. In 2018 the Tax Court ruled in favor of Cameco and dismissed the assessment. This decision was then appealed by the tax authorities to the Federal Court of Appeal. The Federal Court of Appeal dismissed the appeal and also ruled in favor of Cameco. “In this appeal, the Crown does not challenge any of the factual findings made by the Tax Court Judge. Rather, the Crown adopts a broader view of paragraphs 247(2)(b) and (d) of the Act and submits that Cameco would not have entered into any of the transactions that it did with CESA and CEL with any arm’s length person. As a result, according to the Crown, all of the profit earned by CEL should be reallocated to Cameco. The Crown, in its memorandum, also indicated that it was raising an alternative argument related to the interpretation of paragraph 247(2)(a) of the Act. … However, subparagraph 247(2)(b)(i) of the Act does not refer to whether the particular taxpayer would not have entered into the particular transaction with the non-resident if that taxpayer had been dealing with the non-resident at arm’s length or what other options may have been available to that particular taxpayer. Rather, this subparagraph raises the issue of whether the transaction or series of transactions would have been entered into between persons dealing with each other at arm’s length (an objective test based on hypothetical persons) — not whether the particular taxpayer would have entered into the transaction or series of transactions in issue with an arm’s length party (a subjective test). A test based on what a hypothetical person (or persons) would have done is not foreign to the law as the standard of care in a negligence case is a “hypothetical ‘reasonable person’” (Queen v. Cognos Inc., [1993] 1 S.C.R. 87, at page 121, 1993 CanLII 146). … The Crown’s position with respect to this hypothetical transaction is also contradicted by its position in this case. Essentially, in this case, Cameco became aware of an opportunity to purchase Russian sourced uranium from Tenex and Urenco and chose to complete those arrangements through a foreign subsidiary rather than purchasing this uranium itself and selling it to third-party customers in other countries. This was a foreign-based business opportunity to ...

Following an audit of Mopani Copper Mines Plc. the Zambian Revenue Authority (ZRA) found that the price of copper sold to related party Glencore International AG had been significantly lower than the price of copper sold to third parties. A tax assessment was issued where the ZRA concluded that the internal pricing had not been determined in accordance with the arm’s length principle, and further that one of the main purposes for the mis-pricing had been to reduce tax liabilities. Mopani Copper Mines Plc. first appealed the decision to Zambia’s Tax Appeal Tribunal, and after a decision was handed down by the Tribunal in favor of the ZRA, a new appeal was filed with the Supreme Court. The Supreme Court dismissed Mopani’s appeal and ruled in favor of the ZRA. App-024-2017-Mopani-Copper-Mines-Plc-Vs-Zambia-Revenue-Authority-20th-May-2020-Mambilima-Cj-Malila-And-Mutuna-JJS ...

In March 2020 the Australian Taxation Office issued an tax assessment regarding transfer pricing to Rio Tinto’s aluminium division according to which additional taxes in an amount of $86.1 million must be paid for fiscal years 2010 – 2016. According to the assessment Rio’s Australian subsidiaries did not charge an arm’s length price for the aluminium they sold to Rio’s Singapore marketing hub. This new aluminum case is separate to Rio’s long-running $447 million dispute with the ATO over the transfer pricing of Australian iron ore. Rio intents to object to the ATO’s aluminium claim and states that the pricing of iron ore and aluminium has been determined in accordance with the OECD guidelines and Australian and Singapore domestic tax laws ...

Kenya Fluospar Company Ltd (KFC) had been issued an assessment related to VAT and transfer pricing – leasing of mining equipment, mining services and management services. The assessment was later set aside by the Tax Tribunal and an appeal was then filed by the tax authorities with the High Court THE JUDGEMENT The High Court dismissed the appeal of the tax authorities and decided in favour of KFC. Excerpts “B. Whether the Commissioner was right in the using Transactional Nett Margin Method (TNMM) instead of Split Profit Method (SPM) in determining how to share the income tax between KFC EPZ. 48. Rule 7 thus gives the various methods of choice, one of them being the profit split method. In this regard also, Rule 8(2) provides as follows – 8(2). A person shall apply the method most appropriate for his enterprise, having regard to the nature of the transaction, or class of related persons or function performed by such persons in relation to the transaction. 49. In my view, it follows from the above provisions that the choice of the most favourable tax assessment method is that of the tax payer and not the Commissioners. In this regard, I agree with the reasoning in the case of Unilever Kenya Ltd – vs – The Commissioner of Income Tax [2005]eKLR wherein it was held that the tax payer is entitled to choose the most favourable method to their advantage as far liability to tax is concerned. 50. I however, agree that the Commissioner can intervene where there is evidence of fraud or evasion of taxes. The Commissioner can also intervene and re-asses income tax of a taxpayer and raise additional assessments – see Pilli Management Consultants Ltd – vs – Commissioner of Income Tax – Mombasa HC Misc. Application No.525 of 2016. 51. The main issue that has arisen herein is that instead of addressing the objection raised using the selected profit margin method, the Commissioner changed to the Transactional Nett Margin Method without indicating the law that confers on the Commissioner the power to change the method. 52. Even in this appeal the Commissioner has not pointed the section of the law that gives it the right to change the choice method elected by the taxpayer. The Commissioner maintains that it has general power to change the method because they found new intangible assets of KFC. 53. First of all, there is no evidence that the mining and prospecting licences were new assets not known in the profit split method. Secondly, even if they were new intangible assets, the Commissioner would have to back his change of method with the law, which they have not. I thus find that the Commissioner had no legal power to change to a new method of Transaction Nett Margin method. The Commissioner could only use the Profit Split method chosen by the tax payer. The Commissioner was thus right in using the Transactional Nett Margin Method.” “C. Whether the alleged non benchmarked management services offered to KFC by a related non – resident company (KCMC) do in fact exist, and if so what value could be attributed to the same. 54. It is not in dispute that KFC entered into a management consultancy agreement with Kestrel Capital Management Limited (KCMC), such services to be provided upon requests. The Commissioner contends that no such management consultancy services were provided as no requests were made by KFC to KCMC for such services. KFC on the other hand maintains that they were provided with such management consultancy services by KCMC through meetings and other interactions on financial, investment and human resources matters, and relied on minutes of meetings held which were not disputed by the Commissioner. 55. In my view though indeed there is no evidence that any formal written requests for such management consultancy services was produced by KFC, there was evidence of interactions and meetings held. Such interactions and meetings between KFC and KCMC in my view were adequate proof of consultancy services provided. An adviser is an adviser and the final decision will still have to be made by the principal. If an adviser and a principal hold meetings and discuss items on the operations and management of the business affairs of the principal, in my view, that is adequate to satisfy the provision of consultancy services by the consultant. The fact that members of one corporate institution are the same in another corporate institution does not make a difference in law. As for the value to be attributed to the professional services provided, that will go according to the respective contract, and this court is not suited to determine the same with the facts placed before it.” “63. Consequently, and for the above reasons, I find that both appeals have no merits. I thus dismiss Appeal No. 2 of 2018 and No.3 of 2018 herein. Each of the parties will bear their respective costs of appeal.” Click here for other translation Kenya vs KFC ITA_3_&_2_of_2018__ Feb 2020 ...

Glencore Australia (CMPL) sold copper concentrate produced in Australia to its Swiss parent, Glencore International AG (GIAG). The tax administration found, that the price paid by Glencore International AG to Glencore Australia for the copper concentrate in the relevant years according to a price sharing agreement was less than the price that might reasonably be expected to have been paid in an arm’s length dealing between independent parties. ‘The amended assessments included in the taxpayer’s assessable income additional amounts of $49,156,382 (2007), $83,228,784 (2008) and $108,675,756 (2009) referrable to the consideration which the Commissioner considered would constitute an arm’s length payment for the copper concentrate sold to Glencore International AG in each of the relevant years. The Federal Court of Australia found in favor of Glencore. “Accordingly I find that the taxpayer has established that the prices that CMPL was paid by GIAG for the copper concentrate it supplied to GIAG under the February 2007 Agreement were within an arm’s length range and accordingly the taxpayer has discharged the onus of proof on it.” “In view of my conclusions, the objection decisions should be set aside and the amended assessments for the 2007, 2008 and 2009 income years set aside.“ On October 7 2019 it was announced that the Australian Tax Office will appeal the ruling of the Federal Court. 2019FCA1432 ...

BHP Group has agreed to pay the state of Western Australia A$250 million to end a dispute over royalties paid on iron ore shipments sold through its Singapore marketing hub. The State government found in January that the world’s biggest miner had underpaid royalties on iron ore shipments sold via Singapore stretching back over more than a decade. BHP reached a deal to pay A$529 million in additional taxes to the Australian government late last year to settle a long-running tax dispute over the miner’s Singapore hub on its income from 2003-2018 ...

Mining group BHP Billiton had not in it’s Australian CfC income included income from associated British group companies from sales of Australian goods through Singapore. The tax authorities held that the British companies in BHP’s dual-listed company structure fell within a definition of “associate”, and part of the income should therfore be taxed in Australia under local CfC legislation. In December 2017 BHP won the case in an administrative court but this decision was appealed to the Federal Court by the authorities. The Federal Court found in favor of the tax authority. The court found that both BHP’s Australian and British arms are associates, and therefore subject to tax in Australia under Australien CfC rules. BHP has now asked the High Court for leave to appeal. Australia v BHP jan 2019 FC AFC 4 ...

ARPTe Ltd had paid a subsidiary for management services and use of intangibles. The benefit of those payments were challenged by the tax authorities and an assessment was issued where these deductions had been denied. An appeal was filed with the tax court Judgement of the Tax Court The Court set aside the assessment of the tax authorities and decided in favor of ARPTe Ltd. According to the Court ARPTe Ltd had been able to provide sufficient evidence that the management services and intangibles provided by the subsidiary had actually benefited the company. “ Click here for translation PUT-108755-15-2013 Jan 2019 ...

Bulatovskiy Basalt LLC extracted and sold basalt rubble. The rubble was sold to three related intermediaries, whom in turn, resold the rubble to the final buyers. The resale price was on average double the transfer price. The tax authorities considered that the sole purpose of incorporating intermediaries into the sales structure was to obtain an unreasonable tax benefit in the form of underestimation of the profits from the sale of rubble and the tax base. According to the tax authorities, Bulatovskiy Basalt LLC could instead have enter into contracts with the final buyers directly. The tax authorities issued an assessment of income based on the resale of the rubble to the final Consumers. Bulatovskiy Basalt LLC brought the case to Court. The courts of the first and second instance ruled in favor of Bulatovskiy Basalt LLC. The courts took into account the existence of reasonable reasons for the involvement of intermediaries, including the presence of real functions.The first instance court considered the method used by the tax authority to calculate the amount of the additional charge to be the price of subsequent sale (Article 105.10 of the Tax Code).The courts indicated that the subsequent sale price method should not have been applied in this case, since the method of comparable market prices has priority.The tax authority did not substantiate the use of the subsequent sale price method actually applied and did not refer to the provisions of Chapter 14.3 of the Russian TC.The tax authority incorrectly applied the subsequent sale price method. The gross profit margin of comparable companies was not calculated. Click here for translation A05-5548-2018_20181123_Postanovlenie_apelljacionnoj_instancii ...

The Australian Taxation Office has agreed on a settlement with BHP Mining Group to resolve a transfer pricing dispute relating to transfer pricing treatment of commodities sold to a Singapore marketing hub. BHP had originally been assessed with over AUD 1 billion in additional taxes. According to the settlement BHP will pay additional tax of AUD 529 million to resolve the dispute, covering the years 2003–18. According to the settlement BHP Group will also increase its ownership of BHP Billiton Marketing AG, the company conducting BHP’s Singapore marketing business, from 58 percent to 100 percent. The change in ownership will result in all profits made in Singapore in relation to the Australian assets owned by BHP Group being fully subject to Australian tax. BHP’s Singapore marketing arrangements will continue to be located in Singapore and will also be within the ‘low risk’ segment for offshore marketing hubs ...

Like other sectors of the economy, there are base erosion and profit shifting risks in the mining sector. Based on the ongoing work on BEPS, the IGF (Intergovernmental Forum on Mining) and OECD has released guidance for source countries on transfer pricing in the mining sector. The transfer pricing and tax avoidance issues identified in the sector are: 1. Excessive Interest Deductions Companies may use related-party debt to shift profit offshore via excessive interest payments to related entities. “Debt shifting” is not unique to mining, but it is particularly significant for mining projects that require high levels of capital investment not directly obtainable from third parties, making substantial related-party borrowing a frequent practice. 2. Abusive Transfer Pricing Transfer pricing occurs when one company sells a good or service to another related company. Because these transactions are internal, they are not subject to market pricing and can be used by multinationals to shift profits to low-tax jurisdictions. Related-party transactions in mining can be broadly grouped into two categories: (1) the sale of minerals and/or mineral rights to related parties; and (2) the purchase or acquisition of various goods, services and assets from related parties. Developing countries require sector-specific expertise to detect and mitigate transfer mispricing in the mining sector. 3. Undervaluation of Mineral Exports Profit shifting via the pricing of mineral products sold to related parties is a major concern for many mineral exporting countries. For developing countries, these risks are elevated where government agencies lack the mineral-testing facilities required to verify the grade and quality of mineral exports, as well as detailed sector-specific knowledge of the mining transformation process and mineral product pricing. 4. Harmfull Tax Incentives Mining and exploration tax incentives are common in developing countries. While tax incentives could encourage expansion of the sector, they may also lead to excess transfers of the gains from countries. It is unrealistic to expect that developing countries will forego incentives entirely due to the pressures of attracting investment. However, it is important that countries understand when tax incentives may be appropriate, how companies are likely to respond to incentives, and the distinction between tax incentives that permanently reduce taxes and from provisions affecting timing impacts. 5. Tax Stabilisation Clauses Fiscal stabilization clauses are problematic from a tax perspective because they can freeze the fiscal terms in the contract such that changes in tax law may not be applicable to existing mines, foregoing significant government revenue. 6. International Tax Treaties Developing countries consistently raise concerns about tax treaty abuse. Countries with abundant mineral resources need particular assistance in this area, considering how treaty provisions might have a significant impact on taxes imposed on the mining sector. 7. Offshore Indirect Transfers of Mining Assets Transfers of ownership of company assets (or the companies themselves) can generate significant income, which many countries seek to tax as capital gains. Transactions may be structured to fall outside the mining country’s tax base by selling shares in an offshore company holding the asset, without notifying tax authorities in the country where the asset/company is located. 8. Metals Streaming Metals streaming involves mining companies selling a certain percentage of their production at a fixed cost to a financier in return for funds for partial or complete mine development and construction. Since the amount of financing provided is linked to the discounted mineral price, companies have strong incentives to agree to lower fixed prices to increase the up-front finance available. Streaming reduces the tax base of resource-producing countries, where royalties and income tax use sales revenue as part of calculations. There is virtually no guidance on these arrangements in the mining tax literature. 9. Abusive Hedging Arrangements Hedging is a legitimate business practice in many commodity markets. It consists of locking in a future-selling price in order for both parties to the transaction to plan their commercial operations with predictability. A problem arises when companies engage in abusive hedging with related parties. They use hedging contracts to set an artificially low sale price for production and therefore record systematic hedging losses, reducing their taxable income. 10. Inadequate Ring-Fencing It is possible that mining companies will have multiple activities within a country, creating opportunities to use losses incurred in one project (e.g., during exploration for a new mine), to offset profits earned in another project, thereby delaying payment of corporate income tax. Ring-fencing is one way of limiting income consolidation for tax purposes; however, getting the design right is critical to securing tax revenues while attracting further investment. The following reports adresses some of these issues: Limiting the impact of Excessive Interest Deductions on Mining Revenue Tax incentives in Mining: Minimising risk to Revenue Comparables Data for Transfer Pricing Analyses – Prices of Minerals Sold in an Intermediate Form Toolkit for Transfer Pricing Risk Assessment in the African Mining Industry Transfer Pricing Cases in Mining and Commodity Case NameDescriptionDateCourtCatagoriesKeywords ...

Several mining companies are beeing audited by the Canadian Revenue Agency for aggressive tax planning and tax evasion schemes. Among the high-profile companies that have filed pleadings with the Canadian Tax Court are Cameco, Silver Wheaton, Burlington Resources, Conoco Funding Company and Suncor Energy. The CRA says, the companies inappropriately ran international transactions through subsidiary companies in low-tax foreign jurisdictions. In the Cameco case the Revenue Agency has audited years 2003 to 2015 and challenged Cameco Canada’s arrangements with a Swiss subsidiary. Cameco sells uranium to its marketing subsidiary in Switzerland, which re-sells it to buyers, incurring less tax than the company would through its Canadian office. The CRA position is that Cameco Canada was in fact carrying the uranium business – not Swiss Cameco subsidiary. The total tax bill for the 13 years: $2.1-billion, plus interest and penalties. Three tax years are currently being tried in the tax court, where a final decision is expected in late 2018 or early 2019 ...

A transfer pricing dispute between South African Revenue Service and Sishen Iron Ore, a subsidiary of Kumba Iron Ore, has now been resolved in a settlement of ZAR 2.5bn. The case concerned disallowance of sales commissions paid to offshore sales and marketing subsidiaries in Amsterdam, Luxembourg and Hong Kong. Since 2012, Kumba Iron Ore’s international marketing has been integrated with the larger Anglo American group’s Singapore-based marketing hub. The settlement follows a similar investigations into the transfer pricing activities of Evraz Highveld Steel, which resulted in a R685 million tax claim against the now-bankrupt company related to apparent tax evasion using an Austrian shell company between 2007 and 2009 ...

Canadian mining company, Cameco Corp, has settled a tax dispute and will pay the IRS $122,000 for income years 2009-2012. Cameco’s dispute with tax authorities relates to its offshore marketing structure and transfer pricing. Cameco sells uranium to its marketing subsidiary in Switzerland, which re-sells it to buyers, incurring less tax than the company would through its Canadian office. Cameco says it has a marketing subsidiary in Switzerland because most customers are located outside Canada ...

The London-based gold mining firm, Acacia Mining Plc, the largest mining company operating in Tanzania, was in July 2017 issued a $190 billion tax bill. The bill is split into $40 billion in unpaid taxes and an additional $150 billion in interest and penalties. The case is based on the findings of government-appointed committees. Following the release of a government-ordered audit of the mining industry, Acacia Mining was  accused of operating illegally in the country and tax evasion. The charge covers alleged under-declared export revenues from the Bulyanhulu and Buzwagi mines over periods between 2000 and 2017. For its part, Acacia, while refuting the government’s findings, “re-iterates that it has fully declared all revenues” ...

The Platform for Collaboration on Tax (IMF, OECD, UN and the WBG) has published a toolkit for addressing difficulties in accessing comparables Data for Transfer Pricing Analyses. The Toolkit Includes a supplementary report on addressing the information gaps on prices of Minerals Sold in an intermediate form. PUBLIC-toolkit-on-comparability-and-mineral-pricing ...

Singapore marketing hubs are being used by large multinational companies — and billions of dollars in related-party transactions that are being funnelled through the hubs each year. The Australian Tax Office has issued claims of substantial unpaid taxes to mining giants Rio Tinto and BHP Billiton. BHP Billiton and Rio Tinto have revealed through the Senate inquiry they have been issued amended assessments for tax, interest and penalties of $522 million and $107 million respectively. These claims will be challenged in court. The cases centres on the use of commodity trading/marketing hubs established in Singapore colloquially known as the Singapore Sling. The Australian taxation commissioner alleges Rio Tinto and BHP Billiton is using subsidiaries in Singapore to reduce the taxes in Australia. It has been revealed that from 2006 to 2014, BHP Billiton sold $US210 billion worth of resources to its Singapore subsidiary. That was then on-sold to customers for $US235 billion — a $US25 billion mark-up over eight years. After expenses, the Singapore marketing hub was left with a $US5.7 billion profit over those eight years. The key is to sell commodities to a related entity in Singapore at say $50 tonne. The company in Singapore can then sell the ore to clients at say the market price of $70 tonne. Profit gets registered in Singapore, not in Australia, and the company tax rate in Singapore is a lot lower, around 15 per cent. So companies can effectively transfer the profit to those lower taxing destinations. While the ATO accepts there are legitimate business activities being conducted in Singapore (shipping, insurance, and so-called marketing), the question is whether the profits attributable to the Singapore hubs are reasonable. BHP Billiton and Rio Tinto have revealed through the Senate inquiry they have been issued amended assessments for tax, interest and penalties of $522 million and $107 million respectively. In BHP’s case, its Singapore hub is owned 58 per cent by BHP Australia, and 42 per cent by BHP UK. Under Australian laws, profits on the 58 per cent are attributed back to Australia, and subject to company tax at 30 per cent. That has resulted in BHP paying $945 million of Australian tax on the Singapore profits from 2006 to 2014. But profits on the 42 per cent of the Singapore marketing hub that are owned by BHP UK escape the Australian tax net, so the more profits apportioned to Singapore, the less tax paid in Australia. The reason why BHP Billiton and Rio Tinto get an Australian tax advantage from the Singapore hubs is because of their dual listing on the London and Australian stock exchanges. That allows them to put ownership of the Singapore hub partly in the hands of their UK related companies ...

The UN Transfer Pricing Manual does not address industry-specific issues, but, in 2017 a guidance note was developed by a subcommittee looking into transfer pricing issues in extractive industries, both relating to the production of oil and natural gas and relating to mining and minerals extraction. The note draws on materials that have been published in other fora, including the Platform for Cooperation on Tax (hereafter: “the Platform”), reflecting enhanced collaboration between the IMF, OECD, UN and WBG for the benefit of developing countries. Reference can be made to the Discussion Draft published by the Platform on Addressing the Information Gaps on Prices of Minerals Sold in an Intermediate Form and the Discussion Draft presenting A Toolkit for addressing Difficulties in Accessing Comparable data for Transfer Pricing Analyses. Reference can also be made to the WBG’s Extractive Industries Transparency Initiative and materials3 and the publication Transfer Pricing in Mining with a Focus on Africa. Table 1 in the first part of the note identifies some of the transfer pricing issues that often arise in the extractive industries. The table is organized by reference to the various major stages in the extractive industry value chain. The table makes some general suggestions on methods and approaches that might be used in addressing the identified issues. Thereafter, the guidance note provides several case examples, some of which result from discussions with tax inspectors working in developing countries. Taken together, the table and the examples provide useful background information for developing countries to utilize in addressing transfer pricing issues in extractive industries. The note does not aspire to provide comprehensive transfer pricing guidance for the extraction industries, but should provide a useful summary and checklist of some of the issues that commonly arise. It is recommended that this extractive industry guidance note and the Manual be consulted together. UN TP-and-Extractive-Industries 310317 ...

AFRICAN BARRICK GOLD PLC (now Acacia Mining Plc), the largest mining company operating in Tanzania, was issued a tax bill for unpaid taxes, interest and penalties for alleged under-declared export revenues from the Bulyanhulu and Buzwagi mines. Acacia Mining was accused of operating illegally in the country and for tax evasion. Decision of the Tax Revenue Appeals Tribunal The Tribunal decided in favour of the tax authorities. “The conclusion that can be drawn from the above definitions is that the explanation offered by ABG as the source of dividends, i.e., distributable reserves and IPO proceeds are far from being plausible. In the circumstances, it is fair to conclude that the respondent’s argument that the transactions were simply a design created by the appellant aimed at tax evasion was justified. One also wonders as to how could part of IPO proceeds, a one-off event, even if those proceeds were distributable as dividends (which in law they are not), could explain the payment of four-years, back-to-back dividends to the appellant’s shareholders. Since ABG’s only entities that carry on business anywhere in the world are the three Tanzanian gold-mining companies, ABG’s only source of revenue that could create net profits or retained earnings would be the three Tanzanian companies (or one or more of them). While none of them was allegedly making any profits, and since the appellant has no other subsidiary anywhere in the world engaged in business, one is compelled to further conclude that at least one, if not more or all, of the appellant’s three gold producing subsidiaries in Tanzania was making profit. We see no other plausible explanation. Ultimately, the fact that none of ABG’s subsidiaries is declaring any profit that could provide its holding company with such huge net profits sufficient to distribute to its shareholders four years in a row is what in our respectful opinion constitutes the evidence of a sophisticated scheme of tax evasion. To borrow the words of Lord Browne-Wilkinson, this Tribunal cannot accept to be relegated to a mere spectator, mesmerized by the moves of the appellant’s game, oblivious of the end result. The circumstances remind one of the wise words of Justice Benjamin Cardozo in Re Rouss, 116 N.E. 782 at 785, who stated: “Consequences cannot alter statutes but may help to fix their meaning.” We are thus of the respectful view that the Board was entitled to go beyond the mere plain meaning of the provisions of section 66 (4) (a) of the Income Tax Act. The circumstances fully justified the application of the purposive approach rule in construction of tax statutes, as promulgated by Lord Wilberforce in W. T. Ramsay and more elaborately explained by Lord Browne-Wilkinson in McGuckian. Hence, by recognizing the scheme behind the facade that ultimately enabled it to uncover the true source of the dividends that ABG was able to pay to its shareholders for four consecutive years, the Board took the correct view of the law. With these findings we see no merit in the first and second grounds of appeal, and we would dismiss both of them. This conclusion would allow us to now determine the third ground of the appeal to the effect that the Commissioner General was justified in invoking his powers under section 133 (2) of the Income Tax Act , 2004 and section 19 (4) of the Value Added Tax Act to register the appellant under the two Acts and issue it with TIN and VRN Certificates. In the ultimate result, we find no merit in this appeal. We dismiss it with costs.” Click here for translation african barick ...

The tax authorities had issued an assessment concerning related party transactions of chrome ore, but without consulting or having approval from the Transfer Pricing Commission in the General Directorate of Taxes in the Ministry of Finance. On that basis an appeal was filed by Albanian Chrome sh.pk. Judgement of the High Court The Court set aside the tax assessment and decided in favor of “Albanian Chrome sh.p.k.” Excerpt “The Civil College considers to point out that in terms of competence, form and procedure in the above case, they must find implementation and strictly respect the provisions of Articles 36 and 37 of Law no. 8438/1998 and those of the relevant instruction issued implementing his. Thus, in this Instruction, in the third paragraph of point 6, it is clearly and explicitly provided that: “Any correction of the transfer pricing in the case of international transactions can be done only through the Transfer Pricing Commission in the General Directorate of Taxes in the Ministry of Finance. If a tax authority seeks to implement this provision, it must refer the matter to the above-mentioned commission. This Commission implements Article 36 by rigorously referring to the OECD Transfer Pricing Guidelines, published in 1995. As the litigants claim and as the courts of fact acknowledge, there is no requirement and no position or decision-making from the aforementioned Transfer Pricing Commission. Only the report drafted by the control inspectors mentions the need for expression and decision-making of this Commission regarding the transfer price. While, although obligatory to be requested, without any decision by this Commission, the act of tax assessment notice has been issued, which seems to be motivated by the irregularity in the “transfer price”, an administrative act that has been confirmed by other defendants on the way to administrative appeal. The Civil College considers that, based on the above reasoning, also due to irregular and illegal actions of the defendants in applying the form and procedure regarding the “transfer pricing”, the administrative act subject to trial (Tax Assessment Notice no. .4916 / 10 prot., Dated 16.11.2006) is an absolutely invalid act. The nullity of the administrative act subject to trial comes because the above-mentioned legal and normative legal provisions require in an orderly manner that, regarding the determination of tax liability due to “transfer pricing”, should have been requested in advance and expressed by a decision of the Commission of Transfer Pricing to the General Directorate of Taxes in the Ministry of Finance, a competence and procedure that has been completely ignored by the defendants. Respect for the competence to exercise legal and administrative authority by state bodies is essential for the legality and validity of administrative acts issued by them. Also, the nullity of the administrative act subject to trial comes because the defendants, the decisions issued by them, do not motivate or justify the application or not of the requirements of Article 36 of Law no. 8438/1998 and do not contain any procedural and material supporting references in the OECD Transfer Pricing Guidelines published in 1995. For all the reasons set out above in this decision, as the court of first instance and the court of appeal have erred in applying the substantive law and the civil and administrative procedural law (including the tax law), regarding the very circumstances of the fact that they have The Civil College concludes that both court decisions should be reversed and the lawsuit accepted on its merits, since the administrative act under judicial review is absolutely invalid, as an act issued “Contrary to the form and procedure required by law” (letter “c” of Article 116 of the Code of Administrative Procedures).” Click here for other translation 83_csh_00-2013-465 ...

“Copper Corporation S.A.” had deducted intra-group service payments in it’s taxable income. The Peruvian tax authorities determined that the documentation provided by the company did not sufficiently support the actual provision of these services. Hence, tax deductions for the expenses was denied. The case was taken to the Tax Court The court dismissed the appeal and upheld the assessment issued by the tax authorities. Click here for English Translation Peru VS Tribunal Fiscal 22 July 2011_8_12609 ...