Determining the Price of Minerals

The document outlines a transfer pricing framework designed to help developing countries mitigate base erosion and profit-shifting risks in the mining sector. It focuses on the application of the Comparable Uncontrolled Price (CUP) method to ensure that minerals sold to related parties are priced at arm's length. The guide identifies key economic factors influencing mineral prices—such as physical characteristics, supply and demand dynamics, and contractual terms—and suggests administrative tools like taxpayer guidance, safe harbours, and Advance Pricing Arrangements (APAs) to simplify compliance and audit processes.

• Multinational enterprises (MNEs) in the mining sector pose significant tax revenue risks to developing countries by selling minerals to related offshore entities at prices below arm's length, which shifts profits to low-tax jurisdictions.
• The Comparable Uncontrolled Price (CUP) method is considered the most direct and reliable way to apply the arm's length principle for commodities like minerals, and is preferred over other transfer pricing methods when it can be applied reliably.
• To reliably apply the CUP method, tax administrations must consider three primary comparability factors: the physical characteristics and quality of the product, the economic circumstances at the time of the agreement, and specific contractual terms.
• When determining arm's length prices, the associated mining enterprise should be viewed as part of its MNE group, possessing the group's market intelligence and bargaining power, rather than as a detached stand-alone entity.
• Economic circumstances affecting price include supply and demand dynamics, the market concentration of buyers and sellers, the mine's production history and reputation, and sovereign risk related to production disruptions.
• Tax administrations can use 'safe harbour' regimes to reduce audit burdens; for example, the Republic of Guinea implemented a 'bauxite reference price' in July 2022 requiring companies to sell bauxite at or above a specific reference price.
• Advance Pricing Arrangements (APAs) can provide tax certainty and prevent litigation, but for minerals, they should utilize variable index prices rather than fixed prices due to commodity market volatility.

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} }