Determining the Price of Minerals

This guide, produced by the International Institute for Sustainable Development (IISD) and the OECD, provides a transfer pricing framework to help tax administrations in resource-rich developing countries accurately value mineral sales between related parties. It focuses on the application of the Comparable Uncontrolled Price (CUP) method to ensure that minerals are priced on an arm's length basis, thereby reducing base erosion and profit-shifting risks.

• The guide identifies significant transfer pricing risks across the mining value chain, including intra-group technical services and equipment rental during exploration, related-party debt and metal streaming arrangements during development, and the mispricing of minerals or the use of related-party marketing entities during production.
• The Comparable Uncontrolled Price (CUP) method is recommended as the most direct and reliable way to apply the arm's length principle for commodities like minerals, provided that the transactions are comparable or that reasonable, accurate adjustments can be made to eliminate material differences.
• To apply the CUP method reliably, tax administrations must consider three primary economically relevant factors: the physical characteristics and quality of the product, the economic circumstances at the time of the agreement, and specific contractual terms.
• The framework emphasizes that an associated mining enterprise should be viewed as part of a larger multinational enterprise (MNE) group, meaning it has access to the group's market intelligence and bargaining power, rather than being treated as a detached, stand-alone entity in a weak bargaining position.
• Physical characteristics of minerals influence pricing through the quantity of the payable element, downward adjustments (penalties) for undesirable impurities, and upward adjustments for desirable properties or valuable by-products.
• Economic circumstances affecting price include global and regional supply and demand dynamics, the market concentration of buyers and sellers, the production history and reputation of the mine, and sovereign risks in the host state that impact production.
• The guide suggests three administrative approaches to simplify compliance and resource allocation: publishing taxpayer guidance on recommended methodologies, implementing safe harbour regimes, and utilizing Advance Pricing Arrangements (APAs).
• The Republic of Guinea is cited as an example of a country that adopted a safe harbour regime in July 2022 for bauxite prices, requiring companies to sell at or above a 'bauxite reference price' calculated from international indexes and adjustments.

APA

Viola, A., Lassourd, T., & Readhead, A. (2023). Determining the Price of Minerals. International Institute for Sustainable Development. https://www.iisd.org/system/files/2023-11/determining-the-price-of-minerals-framework.pdf

Chicago

Viola, Andrew, Thomas Lassourd, and Alexandra Readhead. Determining the Price of Minerals. International Institute for Sustainable Development, 2023. https://www.iisd.org/system/files/2023-11/determining-the-price-of-minerals-framework.pdf.

Wikipedia

{{cite report |last1=Viola |first1=Andrew |last2=Lassourd |first2=Thomas |last3=Readhead |first3=Alexandra |title=Determining the Price of Minerals |publisher=International Institute for Sustainable Development |date=2023 |url=https://www.iisd.org/system/files/2023-11/determining-the-price-of-minerals-framework.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{viola2023determining, author = {Viola, Andrew and Lassourd, Thomas and Readhead, Alexandra}, title = {{Determining the Price of Minerals}}, institution = {International Institute for Sustainable Development}, year = {2023}, url = {https://www.iisd.org/system/files/2023-11/determining-the-price-of-minerals-framework.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }