The Intergovernmental Forum on Mining, Minerals, Metals, and Sustainable Development (IGF) has announced the release of a draft practice note for consultation on tax treaty practice in mining countries. Interested parties are invited to submit feedback by 30 September 2021. The practice note has been prepared under the IGF program to address some of the challenges developing countries are facing in raising revenue from their mining sectors. In particular, the practice note has been written for governments of resource-rich developing countries that are considering negotiating or renegotiating a tax treaty.
The practice note covers three main areas:
- An overview of tax treaties in general, including the treaty models, renegotiating a treaty, and terminating a treaty;
- The Benefits and Costs of Tax Treaties in a Mining Context; and
- Negotiating Tax Treaties That Protect the Right to Tax Mining Income.
With respect to negotiations, the practice note highlights four main risk areas to be addressed in order to protect against the most material risks to mining revenues, with specific recommendations for each:
- Establish and retain the right to levy capital gains on indirect transfers of mining assets;
- Provide an exhaustive definition of immovable property;
- Design broad rules on a PE; and
- Retain the right to tax income from management and technical services.
In addition to managing risks through the relevant articles of a tax treaty, the practice note also provides recommendations on domestic law changes that should be made.