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Transfer Pricing in the Mining Industry

Transfer Pricing in the Mining Industry

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 ...
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Marketing and Procurement Hubs - Tax Avoidance

Marketing and Procurement Hubs – Tax Avoidance

The Australian Taxation Office has issued new guidance for multinational groups using offshore marketing- and procurment hubs for tax avoidance purposes. The guidance adresses tax schemes where MNEs uses offshore hubs to shift profits and thereby avoid Australian taxes. Offshore hub arrangements are catagorised by the ATO as white, green, blue, yellow, amber, or red – based on the risk assesment for tax purposes of the transfer pricing setup. The new guidance is a result of recent Australian investigations and hearings into tax avoidance schemes used by Multinational Groups. Tax ...
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Pharma and Tax Avoidance, Report from Oxfam

Pharma and Tax Avoidance, Report from Oxfam

New Oxfam research shows that four pharmaceutical corporations — Abbott, Johnson & Johnson, Merck, and Pfizer — systematically allocate super profits in overseas tax havens. In eight advanced economies, pharmaceutical profits averaged 7 percent, while in seven developing countries they averaged 5 percent. In comparison, profits margins averaged 31 percent in countries with low or no corporate tax rates – Belgium, Ireland, Netherlands and Singapore. The report exposes how pharmaceutical corporations uses sophisticated tax planning to avoid taxes. cr-prescription-for-poverty-pharma-180918-en ...
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European Commission concludes on investigation into Luxembourg's tax treatment of McDonald's under EU state aid regulations, September 2018

European Commission concludes on investigation into Luxembourg’s tax treatment of McDonald’s under EU state aid regulations, September 2018

Following an investigation into Luxembourg’s tax treatment of McDonald’s under EU state aid regulations since 2015, the EU Commission concluded that the tax rulings granted by Luxembourg to McDonald’s in 2009 did not provide illegal state aid. According to the Commission, the law allowing McDonald’s to escape taxation on franchise income in Luxembourg – and the US – did not amount to an illegal selective advantage under EU law. The double non-taxation of McDonald’s franchise income was due to a mismatch between the laws of the United States and Luxembourg ...
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Major US MNE's in Ireland

Major US MNE’s in Ireland

Major US MNE’s with regional Headquarters in Ireland for European business activities. The corporation tax rate in Ireland is only 12.5%. However to further sweeten the deal for MNE’s, Ireland has been known to offer special tax deals to MNE’s resulting in much lower effective tax rates. Ireland provides MNEs with both low tax centers for European activities and conduit holding companies serving as hubs for transferring profits and capital to low tax jurisdictions such as Cyprus and Bermuda. Especially MNEs within the IT sector have been known to use ...
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European Commission's investigations into member state transfer pricing and tax ruling practices

European Commission’s investigations into member state transfer pricing and tax ruling practices

Since June 2013, the European Commission has been investigating tax ruling practices of EU Member States. A Task Force was set up in summer 2013 to follow up on allegations of favourable tax treatment of certain companies, in particular in the form of unilateral tax rulings. The Treaty on the Functioning of the European Union (“TFEU”) provides that “any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods ...
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/ Disputes and Settelments
US vs Boston Scientific, June 2018, IRS and Boston Scientific finalize a $608m settlement

US vs Boston Scientific, June 2018, IRS and Boston Scientific finalize a $608m settlement

Boston Scientific and the U.S. Internal Revenue Service have finalized a settlement of $610 million in taxes and interest dating back to the $26 billion acquisition of Guidant in 2006. Boston will pay $303 million in taxes and $305 million in interest to the IRS within the next three months. In 2016, Boston Scientific agreed to pay the IRS $275 million plus interest in a dispute over transfer pricing, plus charges related to a 2006 deal in which Abbott bought Guidant’s stent business from Boston Scientific ...
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Tax avoidance in Australia

Tax avoidance in Australia

In May 2018 the final report on corporate tax avoidance in Australia was published by the Australian Senate. The report contains the findings, conclusions and recommendations based on 4 years of hearings and investigations into tax avoidance practices by multinationals in Australia. Australian-final-report-on-tax-avoidance ...
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Nokia paid 202 million euro to settle a long running dispute with the tax authorities in India

Nokia paid 202 million euro to settle a long running dispute with the tax authorities in India

Under the Mutual Agreement Procedure (MAP), Finland and India have settled a long running tax dispute involving Nokia. The tax authorities in India issued a tax assessment to Nokia for violating withholding tax regulations in India while making royalty payments to its parent company in Finland. An additional assessment was then issued by the tax authorities in India to the parent company in Finland for the same transaction as – according to the tax authorities – the company had a permanent establishment in India. According to the MAP settlement Nokia ...
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Amazon has settled a 200 million Euro tax dispute with France

Amazon has settled a 200 million Euro tax dispute with France

The dispute between Amazon and the French tax authorities relates to transfer pricing in fiscal years 2006 to 2010. Amazon has been accused of tax avoidance in the EU by channeling all local sales through Luxembourg. This set up has been changed in France, where Amazon in 2015 established a branch where all retail sales, charges and profits in France are booked. In October 2017 the EU commission decided that Luxembourg’s arrangement with Amazon is in conflict with EU State Aid regulations and ordered Luxembourg to recover 250 million euros ...
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Google - Taxes and Transfer Pricing

Google – Taxes and Transfer Pricing

Google’s tax affairs are back in the spotlight after filings in the Netherlands have showed that billions of dollars were moved to Bermuda in 2016 using the “double Irish Dutch sandwich”. According to the Washington Post, Google’s cash transfers to Bermuda reached $27b in 2016. Google uses the double Irish Dutch sandwich structure to shield the majority of it’s international profits from taxation. The setup involves shifting revenue from one Irish subsidiary to a Dutch company with no employees, and then on to a Bermuda-mailbox owned by another company registered ...
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UK vs. Apple, Jan. 2018, Payment of £136 million

UK vs. Apple, Jan. 2018, Payment of £136 million

Apple has paid an additional £136m taxes in a settlement with the UK. The settlement is revealed in Apple Europe’s 2017 accounts. “Following an extensive audit by Her Majesty’s Revenue and Customs (HMRC) the Company agreed to pay a corporate income tax adjustment of £136m covering prior years up to September 26, 2015. This payment of additional tax and interest reflects the Company’s increased activity and is recognized in the current financial period which ended on 1 April 2017. As a result of this adjustment the Company’s corporate income tax ...
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Africa - Mining and Transfer Pricing

Africa – Mining and Transfer Pricing

Most Sub Saharan African jurisdictions see the area of mineral transfers/sales as the main transfer pricing risk, but only few have systems in place to check if prices applied to minerals transferred to related parties comply with the arm’s length principle. Studies highlights a strong need for capacity strengthening in the area of transfer pricing throughout the African continent and for enhancing the knowledge of mining industry within tax authorities. South Africa has, for many years, been the leader in transfer pricing audits among the African countries. But emerging countries such as Nigeria, Ghana, Kenya, ...
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OECD’s interactive map of tax jurisdictions

Try OECD’s interactive map of tax jurisdictions here: ...
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EU blacklist of non-cooperative tax jurisdictions

EU blacklist of non-cooperative tax jurisdictions

On December 5, 2017, the EU published it’s blacklist of non-cooperative tax jurisdictions (tax havens). 1. American Samoa American Samoa does not apply any automatic exchange of financial information, has not signed and ratified, including through the jurisdiction they are dependent on, the OECD Multilateral Convention on Mutual Administrative Assistance as amended, does not apply the BEPS minimum standards and did not commit to addressing these issues by 31 December 2018. 2. Bahrain Bahrain does not cover all EU Member States for the purpose of automatic exchange of information, has ...
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Canada vs Cameco, November 2017, Pending case – C$2.2bn in taxes

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 ...
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/ Disputes and Settelments
Canada vs. AGF Management Ltd, Nov. 2017, Dispute settelment $71.9-million in back taxes

Canada vs. AGF Management Ltd, Nov. 2017, Dispute settelment $71.9-million in back taxes

Mutual-fund seller AGF Management Ltd. has settled a federal tax case over income shifted from Canada to an overseas subsidiary. The company has recently disclosed that the Canada Revenue Agency sought a total of $71.9-million in back taxes, interest and penalties related to the period spanning 2005-10. An agreement has since been reached, but the terms were not disclosed. In its latest quarterly report, AGF said the disagreement over taxes owed relates to transfer pricing with a foreign jurisdiction. The AGF disclosures do not mention whether the issues relate to ...
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OECD: Report on harmful tax practices, 16 October 2017

OECD: Report on harmful tax practices, 16 October 2017

The OECD report on harmful tax incentives provides details on reviews of 164 preferential tax regimes. Some preferential tax regimes are considered harmful – where these encourage the erosion of other jurisdictions’ tax bases. All 102 members of the BEPS Inclusive Framework have committed to ensuring that any regimes offered meet the criteria that have been agreed as part of BEPS Action 5. Crucially, this includes a requirement that taxpayers benefiting from a regime must themselves undertake the core business activity, ensuring the alignment of taxation with genuine business substance ...
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South Africa vs. Kumba Iron Ore, 2017, Settelment 2.5bn

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 settelment 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 ...
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South Africa vs. Sasol, Oct. 2017, $878 million tax case

A tax dispute over a potential 11.6 billion rand ($878 million) charge between South Africa -based international chemicals and energy company Sasol and the Revenue Service will play out in South Africa’s Supreme Court of Appeal within the next 12 months. June 30. 2017 a R1.2-billion tax liability was approved by the Tax Court in a case against Sasol by SARS relating to the company’s international crude oil procurement activities between 2005 and 2012. The Tax Court further reported that the final tax amount along with other tax principles raised ...
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