What Mining Can Learn from Oil: A Study of Special Transfer Pricing Practices in the Oil Sector, and their Potential Application to Hard Rock Minerals

Alexandra Readhead

No 128, Policy Papers from Center for Global Development

Abstract: Governments of mining countries are vulnerable to investors manipulating transfer prices as a means of avoiding paying taxes. The two main risks are mining companies undercharging for mineral exports sold to related parties, and overpaying for goods and services. The “solution” has been to apply the “arm’s length principle,” which gives governments the right to adjust the value of a related party transaction so that it accords with similar transactions carried out between independent parties. However, it has been apparent for many years that the arm’s length principle, with its reliance on “comparables” that in practice can rarely be found, is an inadequate response. This paper looks at whether special practices in the oil sector that provide materially greater protection against transfer pricing risk could be applied to hard rock minerals. These are (1) administrative pricing, where government, rather than the taxpayer sets the price for crude oil; and (2) the no-profit rule, which prevents joint venture partners from charging a profit mark-up on the cost of providing goods and services to the group. The paper finds that administrative pricing may be effective at curtailing undercharging of specific mineral products, for example, base and precious metals. The no-profit rule is a less obvious “fit” for mining given the lack of joint ventures, and alternative rules to limit cost overstatement may be required instead.

Pages: 27 pages
Date: 2018-07-16
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.cgdev.org/publication/what-mining-can- ... l&utm_campaign=repec
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cgd:ppaper:128

Access Statistics for this paper

More papers in Policy Papers from Center for Global Development Contact information at EDIRC.
Bibliographic data for series maintained by Publications Manager ().