Total Tax Contribution in the mining sector

April 9, 2009 — PricewaterhouseCoopers (PwC) have carried out a first study of income and non-income taxes ever prepared by anyone for the mining industry on a global basis. Total Tax Contribution is the study of the taxes and other contributions paid by a number of large listed companies in the mining sector. The purpose of the study is to provide greater transparency over the overall contribution of Mining companies to the public finances of the countries where they operate.

The taxes and other contributions to government that Mining companies pay are an important contribution to the creation of prosperity and stability of the countries where they operate. However, the extent of this contribution is not always recognised, since often only corporate income tax is reported separately in their financial statements. Mining companies pay taxes throughout the life cycle of a mining project, and pay many other taxes in addition to corporate income tax, including; employment taxes, property taxes and indirect taxes. In addition, Mining companies often make significant further contributions to government finances through sector specific royalties and levies, and contributions to local infrastructure such as roads, schools and housing.

The study results show that Mining companies make a large economic contribution in the countries where they have mining operations. The fourteen companies participating in the study reported total figures for turnover of US$196bn, wages and salaries paid to employees of US$13.5bn, and a total contribution to government of US$29bn.

The average total contribution to government by a company in a single country reported in the study was US$743m, that is 48% of all the taxes and contributions that Mining companies bear. 29% of the total on average are additional taxes and contributions that are specific to the mining sector, and effectively represent payment to government for extracting natural resources.

World mineral prices have, of course, fallen dramatically since the year ended 31 December 2007 (for which the study data was provided and turnover measured). Although some taxes and contributions, including corporate income tax, are linked to profitability and are expected to drop as revenues and profits decrease, many – including people taxes, property taxes, production taxes, license fees and rents – are not linked to profits and will likely not decrease.

Mining companies also administer taxes on behalf of governments. These are taxes where the company is the unpaid tax collector on behalf of government and represent an administrative burden. For every US$1 of corporate income tax paid by Mining companies, there is another US$0.83 on average of taxes collected.

Mikhail Klubnichkin, partner, tax & legal services, energy utilities and mining, PricewaterhouseCoopers, said:

«The mining companies have always been in the limelight of the state. Therefore, industry experts and public authorities think it most important to form a clear view of these companies’ total input in the corresponding economies».

Notes to Editor:

1. For additional information, please contact Anna Kogosova, PR Assistant Manager.
2. The study has been carried out using the PwC Total Tax Contribution (TTC) Framework and analyses the total taxes of 14 of the world’s largest mining companies, focusing on their largest operations in variety of countries in their year to 31 December 2007 or equivalent period. From this first study, as well as the average global picture in this report, is shown an average country picture for five countries (Australia, Canada, Chile, South Africa and the US).