Protecting the Right to Tax Mining Income

The document argues that standard tax treaty models (OECD and UN) may lead to significant revenue losses for resource-rich developing countries if not adapted for the mining sector. It identifies three primary risks: the inability to tax offshore indirect transfers of mining assets, subcontractors avoiding a taxable presence (permanent establishment), and the loss of withholding tax on technical and management services. To mitigate these, the guide recommends adopting comprehensive domestic definitions of immovable property, implementing 'Extractives PE' or standalone extractive industry articles in treaties, and utilizing standalone 'fees for technical services' articles. It also warns against the 'locking in' of unsustainable tax benefits through fiscal stabilization clauses in Mining Concession Agreements (MCAs).

• Tax treaties can lead to substantial revenue losses for resource-rich countries if they do not specifically account for the mining sector, as evidenced by cases such as Senegal losing USD 257 million over 17 years due to its treaty with Mauritius.
• The right to tax indirect transfers of mining assets is often missing from treaties; only 35% of sampled tax treaties include this right, and this percentage is approximately six percentage points lower for low-income, resource-rich countries.
• To protect capital gains tax on indirect transfers, countries should ensure their domestic law has a comprehensive definition of immovable property and that treaties include the right to tax shares or comparable interests deriving at least 50% of their value from source state assets.
• Mining subcontractors frequently avoid paying taxes by structuring activities to stay below the time threshold for a permanent establishment (PE), a risk particularly high during short-term exploration phases.
• The most effective way to safeguard taxing rights across the mining value chain is to negotiate a standalone extractive industries article that covers both onshore and offshore activities and prevails over other treaty provisions.
• Alternatively, countries can implement a self-standing 'Extractives PE' in Article 5, which displaces the general rule and can include a lower time threshold (e.g., 90 days) to capture subcontractors more effectively.
• Management and technical service fees are a major source of outbound payments; the guide recommends a standalone 'fees for technical services' article (similar to UN Model Article 12A) to allow source states to collect withholding tax without requiring a permanent establishment.
• Fiscal stabilization clauses in Mining Concession Agreements (MCAs) can 'lock in' unfavorable tax treaty benefits, preventing governments from benefiting from subsequent treaty renegotiations or terminations.

APA

Readhead, A., & Taquiri, J. (2021). Protecting the Right to Tax Mining Income. International Institute for Sustainable Development. https://www.iisd.org/system/files/2021-11/protecting-tax-income-mining-countries.pdf

Chicago

Readhead, Alexandra, and Jaqueline Taquiri. Protecting the Right to Tax Mining Income. International Institute for Sustainable Development, 2021. https://www.iisd.org/system/files/2021-11/protecting-tax-income-mining-countries.pdf.

Wikipedia

{{cite report |last1=Readhead |first1=Alexandra |last2=Taquiri |first2=Jaqueline |title=Protecting the Right to Tax Mining Income |publisher=International Institute for Sustainable Development |date=November 2021 |url=https://www.iisd.org/system/files/2021-11/protecting-tax-income-mining-countries.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{readhead2021protecting, author = {Readhead, Alexandra and Taquiri, Jaqueline}, title = {{Protecting the Right to Tax Mining Income}}, institution = {International Institute for Sustainable Development}, year = {2021}, month = nov, url = {https://www.iisd.org/system/files/2021-11/protecting-tax-income-mining-countries.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }