Protecting the Right to Tax Mining Income

Tax treaty practice in mining countries

The goal of this practice note is to help government officials in resource-rich developing countries who may be deciding to adopt or renegotiate tax treaties to protect their right to tax mining income.

By Alexandra Readhead, Jaqueline Taquiri on November 27, 2021

The mining sector often involves multinational investors. This gives rise to a range of cross-border transactions and a key question for governments: Which country has the right to tax the income from these transactions and under what conditions?

International tax treaties signed by governments seeking to attract foreign investment can become tax avoidance vehicles for multinational corporations, especially in resource-rich developing countries. Under tax treaties without proper consideration for mining, governments can end up collecting substantially less revenue from the sector than under their domestic law.

This publication is a practical tool to help governments avoid financial risks linked to tax treaties—specifically in resource-rich developing countries where the mining sector may be a particularly important source of government revenue.

The practice note outlines the costs and benefits of entering tax treaties as well as how to manage or renegotiate existing agreements. It explains how tax avoidance can occur under poorly crafted treaties and concludes with general recommendations to help governments avoid or reduce their revenue risks. It also highlights several recent examples where tax treaties led foreign investors to avoid paying tax in the resource-hosting country as wells as cases where governments successfully renegotiated treaties to better protect their tax base with fairer and more sustainable tax treaties.