GLOBAL DIGITAL TAX REFORMS AND MINING: THE ISSUE OF TIMING DIFFERENCES

The report argues that the OECD's Pillar Two (GloBE) proposal, which uses accounting profits to determine the Effective Tax Rate (ETR), fails to account for timing differences common in the mining sector, such as accelerated depreciation. This discrepancy could lead to 'top-up taxes' being paid to parent company jurisdictions rather than host countries, potentially reducing investment in developing nations. The document evaluates three policy solutions: loss carryforwards and income inclusion credits, deferred-tax accounting, and the use of local tax rules, while also addressing the challenges of permanent differences like tax holidays and stabilization clauses in mining contracts.

• Pillar Two's Global Anti-Base Erosion (GloBE) proposal may inadvertently transfer tax revenue from resource-rich developing countries to developed nations because it calculates the Effective Tax Rate (ETR) based on accounting profits rather than taxable profits determined by local tax rules.
• Timing differences are particularly acute in the mining sector due to large capital expenditures that are typically depreciated faster under local tax laws than under international accounting standards (IFRS/IAS 16), leading to a 0% ETR during early cost-recovery periods.
• Failure to resolve timing differences could reduce the net present value of long-life mining projects, potentially leading to fewer projects being pursued or a reduction in the scale of development in developing countries.
• The report assesses three mechanisms to resolve timing differences: loss carryforwards and income inclusion credits (deemed inadequate for capital-intensive mining), deferred-tax accounting (considered a simple, transparent solution if abuse is guarded against), and the use of local tax rules (which reduces judgment but increases compliance complexity).
• Permanent differences, such as tax holidays, are intended targets of Pillar Two, but the presence of fiscal stabilization clauses in old mining contracts may prevent developing countries from unilaterally removing these incentives to comply with GloBE rules.
• To address permanent differences in mining contracts, the report suggests that the Inclusive Framework on BEPS should explicitly allow countries to modify resource contracts to conform with GloBE rules, treating such changes as bona fide anti-avoidance measures.

APA

Readhead, A., Lassourd, T., & Corrick, L. (2021). GLOBAL DIGITAL TAX REFORMS AND MINING: THE ISSUE OF TIMING DIFFERENCES. International Institute for Sustainable Development. https://www.iisd.org/system/files/2021-04/global-digital-tax-reforms-mining-en.pdf

Chicago

Readhead, Alexandra, Thomas Lassourd, and Lee Corrick. GLOBAL DIGITAL TAX REFORMS AND MINING: THE ISSUE OF TIMING DIFFERENCES. International Institute for Sustainable Development, 2021. https://www.iisd.org/system/files/2021-04/global-digital-tax-reforms-mining-en.pdf.

Wikipedia

{{cite report |last1=Readhead |first1=Alexandra |last2=Lassourd |first2=Thomas |last3=Corrick |first3=Lee |title=GLOBAL DIGITAL TAX REFORMS AND MINING: THE ISSUE OF TIMING DIFFERENCES |publisher=International Institute for Sustainable Development |date=April 2021 |url=https://www.iisd.org/system/files/2021-04/global-digital-tax-reforms-mining-en.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{readhead2021global, author = {Readhead, Alexandra and Lassourd, Thomas and Corrick, Lee}, title = {{GLOBAL DIGITAL TAX REFORMS AND MINING: THE ISSUE OF TIMING DIFFERENCES}}, institution = {International Institute for Sustainable Development}, year = {2021}, month = apr, url = {https://www.iisd.org/system/files/2021-04/global-digital-tax-reforms-mining-en.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }