Comparison Of International Mining Tax Regimes

INTRODUCTION From a tax viewpoint, United States mining companies are at a substantial disadvantage in the international mining area compared with companies in other major capital-exporting countries, according to a 1975 study by Coopers & Lybrand for the American Mining Congress. The study compared the relative tax position of a United States investor with investors from Belgium, Canada, France, Germany, Japan, the Netherlands, Switzerland, and the United Kingdom. The comparison was based on average rates of return realizable by investor companies on four mine-model investments in twelve capital-importing countries. The countries in which these investments were assumed to be made are varied in their tax systems so that a wide range of possibilities was included in the analyses. Each mine model was standard so that the rates of return for each investment by each investor were affected solely by the respective tax systems of the capital-exporting and capital-importing countries. UNITED STATES POSITION The study found that the United States competitive position, in terms of the average rate of return on an overall basis, ranked next to last among the nine capital-exporting countries in the study. Further, the United States overall rate of return is more than 20% below that of the country (Japan) with the highest overall rate of return. On an average return-on-equity basis, the United States' position among the nine investor countries, for each of the mine investments studied, was: copper, eighth; iron ore, sixth; nickel, fifth; manganese, a tie for last place. Figure 1 shows the overall results realized by each capital-exporting country on the basis of average return on equity. [ ] The frequency with which a given capital-exporting country attains the highest or next highest rate of return in a capital-importing country provides further insight and another basis for comparing the tax laws of the capital-exporting countries. Of the situations compared in the study, the United States never attained the highest rate of return, and reached the second and third highest rate of return in only two instances. The tables showing the frequencies of rankings are given in Table 1 for each of the four mine models. In summary, the United States mining company does not have a competitive advantage under the tax rules when competing for mineral concessions in other countries. The United States company, in fact, appears to be at a clear disadvantage. The study also considered the effect of the following recent tax proposals on United States investors in international mining ventures: