World Bank/Norad-seminar, April 2011 Frian Årsnes Mining taxation

1 Contents Project scope Key concerns and findings Key learnings

2 Which project types are covered? Assistance to ministries – Scoping assistance – Pre-design phase (analytical) – Designing of fiscal systems – Model assistance – Monitoring assistance including feasibility studies – Governance assistance Assistance to tax administrations – Scoping assistance – Resource mapping and calibration – Pre-audit assistance (analytical) – Audit assistance (IT-audit, data handling) Assistance to Norwegian institutions – Fact finding – “Same page” discussions Assistance to civil society – Fact finding – “Same page” seminars – Quality assurance

3 Contents Project scope Key concerns and findings Key learnings

Key concerns 4 Transparency Confidential agreements, not law No requirement to publicise annual reports Fiscal regulation ”Early bird” benefits Many and detailed rules Willingness to adjust Problems to adjust Tax administration Willingness to audit Means to audit Methodological weaknesses Competence weaknesses Main instruments in tax avoidance Transfer pricing Tax havens Treaty shopping Transparency Yes to both Fiscal regulation Yes, to all four … but also qualified people ”promoted” away from area Tax administration No, willingness to audit No, means to audit Yes, methodological weaknesses Yes, competence weaknesses … but also extreme laxness towards mining companies as taxpayers … and very little resources put on it Main instruments in tax avoidance Yes to all three … but also huge misuse of derivatives in the form of ”disguised” hedging … and OBVIOUS signs of criminal behaviour … and key findings

5 Contents Project type Key concerns and findings Key learnings

6 Net profit taxes alone does not work  some form of gross taxes are needed - windfall taxation, variable royalty rates - problem is that there is no uniform agreement in various institutions (NORAD, World Bank, IMF, consulting companies, OECD) Derivatives needs to be split from mining income - set up as separate business income - solves a MAJOR problem for tax administrations with a stroke of a pen Huge tax amounts are lost at feasibility stages  usually negotiated with Ministry of Mines, not Ministry of Finance - avoid agreements, base on tax law with provisions for mining Huge discrepancy between resources of tax administration and size of problem - key resource outside consultants can provide is IT audit techniques Extreme back-end loading of tax systems in Africa - low tax rates coupled with fast depreciation coupled with no ring-fencing

Conclusions and recommendations 7 CONCLUSION SHOULD SEEK LEAST COSTLY WAY TO TAX OIL & GAS AND MINING WORLDWIDE - Countries should use the letter of the law - remove back-end loading - increase rates - minimum 5 year depreciation - ring-fencing in accordance with how mining companies account for new shafts or mines - simplify and standardize the tax regulations in the form of law - improve the tax law with reporting requirements and penalty mechanisms - NORAD should form 3-5 year agreements within this area due to - time it takes to follow up the ministries and tax administrations - OECD should come with recommendations on guidelines for tax law in oil & gas and mining

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