Ring-Fencing Mining Income
A toolkit for tax administrators and policy-makers
This IGF toolkit, developed in collaboration with the Organisation for Economic Co-operation and Development, provides practical guidance on when and how to apply ring-fencing rules in the mining sector, drawing on the experiences of resource-rich countries to support balanced and effective tax policy for revenue mobilization.
Recommendations
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Design ring-fencing rules in alignment with existing regulatory and reporting frameworks, such as mining licences or project boundaries, to streamline compliance and leverage established oversight mechanisms.
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Distinctly ring-fence processing and non-mining activities, or implement robust cost and revenue allocation methodologies with transparent, standardized apportionment criteria, to mitigate risks of base erosion and profit shifting.
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Focus ring-fencing provisions on licence holders and profit-based taxes while permitting narrowly defined exceptions to preserve fiscal integrity and administrative clarity.
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Ring-fencing provisions should be embedded within tax or mining legislation rather than confidential contracts, promoting transparency and reducing opportunities for corruption.
A mining company may undertake multiple projects and/or several activities along the mining value chain or be engaged in other commercial or investment activities. The manner in which its revenue and expenses are treated for tax purposes, if they are consolidated or ring-fenced from different projects and activities is an important policy consideration for governments.
This practice note aims to clarify what ring-fencing means in the context of mining taxation, the advantages of adopting ring-fencing rules, and how to mitigate potential challenges through robust tax policy design and effective tax administration practices. It describes and evaluates the different options for designing ring-fencing rules based on the experience of resource-rich countries and highlights key implementation issues that have emerged.
This practice note seeks to help governments of resource-rich countries decide if ring-fencing rules are necessary and, if they are, how to design them to safeguard the timing of government revenues. Each resource-rich country will have to consider, prior to implementation, the appropriateness, including the positive and negative aspects of a ring-fencing regime as a policy option given their fiscal conditions and taxation framework.
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