United Nations Handbook - un.org

1 United Nations Handbook on Selected Issues for Taxation of the Extractive Industries by Developing CountriesUnited Nations Handbookon Selected Issues for Taxation of the Extractive Industriesby Developing CountriesasdfUnited Nations New York, 2017 United Nations Handbook on Selected Issues for Taxation of the Extractive Industries by Developing Countries iiiForewordThe United Nations Handbook on Selected Issues for Taxation of the Extractive Industries by Developing Countries (the Handbook ) is a response to the need, often expressed by developing countries, for clearer guidance on the policy and administrative aspects of apply-ing taxes to enterprises, including multinational enterprises (MNEs) acting in the extractive industries and other local and international companies accessory to the business.

2 Such guidance should not only assist policy makers and administrators in dealing with complex issues such as the quantification of the fiscal take, the costs of decom-missioning, and loss of revenues derived from the indirect transfer of assets, but should also assist taxpayers in their dealings with tax Handbook highlights some of the issues developing coun-tries should bear in mind when negotiating new contracts for the explo-ration and exploitation of natural and mineral resources within their territories. The Handbook covers the following topics in chapter order: 1. Overview; 2. Tax treaty issues; 3.

3 Permanent establishment issues; 4. Indirect transfer of assets; 5. Transfer pricing issues; 6. The tax treatment of decommissioning; 7. The government s fiscal take; 8. Tax aspects of negotiation and renegotiation of con-tracts; and 9. Value added objective of the Handbook is to focus on specific areas of interest for developing countries. The Handbook , as a product of the United Nations Committee of Experts on International Cooperation in Tax Matters ( United Nations Tax Committee), has a special role in reflecting the diversity of the United Nations Membership and placing taxation of the extractive industries in its developmental perspective, by exploring the challenges of taxing an industry that is of particular ivHandbook on Taxation of the Extractive Industriesrelevance to developing countries, including the least developed, where extensive natural resources are often located.

4 This recognizes both the importance to development of fair and effective tax systems, but also the fact that foreign investment, on appropriate terms, is seen as an important path to development by most guidance in this complex area must, in particular, be geared to the inevitable limitations in some countries administra-tions, and deficits in information and skills that many countries are affected by in this area. Issues, in particular, of building and retain-ing capability as well as the need for focus and efficiency in dealing with limited resources, bear strongly on the approach taken in the Handbook .

5 Practical examples relevant to developing countries have been especially relied upon, because the experiences of other devel-oping countries in addressing the extractives sector are an impor-tant way of finding effective solutions that work in their context, and of doing so in the most cost and time effective ways. Examples were also drawn from developed countries, such as Norway and the United Kingdom, due to their first-hand experience in defining some of the policy approaches that are still currently applied to tax the extractive industries, and to charge national rent, also known as fiscal other intergovernmental organizations have sought to provide guidance on selected tax issues for the extractive indus-tries, such as transparency and transfer pricing approaches.

6 The United Nations Tax Committee felt that there is insufficient analysis of the basic features which should be taken into account by any tax adminis-tration when deciding to develop policies or taxation strategies for the extractive industries. The Handbook is therefore quite unique in its aim to provide governments with a basic outline of the challenges they will encounter when seeking to compute the administrative, fiscal, environmental and other related costs of exploring natural resources so that the economic venture does not occur at the expense of the quality of life of the citizens and Handbook is intended to provide guidance only.

7 It seeks to address relevant issues in the extractive industries in a clear form, to raise awareness of potential challenges and opportunities as well as the pros and cons of possible options for countries and agencies in differ-ing positions, and ultimately to assist in making decisions on policy vForewordand administration that are informed and reflect country realities and priorities. To the extent of any inconsistency between this Handbook and the United Nations Model Double Taxation Convention between Developed and Developing Countries, the latter Handbook has been the work of many authors, and particu-lar thanks are due to the Members of the Subcommittee on Extractive Industries Taxation Issues for Developing Countries contribut-ing to this work.

8 Participants included the following Members of the United Nations Tax Committee: Mr. Eric Mensah (Coordinator); Mr. Mohammed Baina (Morocco); Mr. Johan Cornelius de la Rey (South Africa); Mr. El Hadji Ibrahima Diop (Senega l); Ms. Liselott Kana (Ch i le); Mr. Enrico Martino (Italy); Mr. Ignatius Kawaza Mvula (Zambia); Ms. Carmel Peters (New Zealand); Ms. Pragya S. Saksena (India); Mr. Stig B. Sollund (Norway); Ms. Ingela Willfors (Sweden); and Mr. Ulvi Yusifov (Azerbaijan). Other participants were: Mr. Charles Bajungu (Tanzania Revenue Authority); Mr. Tomas Balco (Ministry of Finance of Slovakia); Mr. Rodolfo Bejarano (Red Latinoamericana sobre Deuda, Desarrollo y Derechos Latindadd); Ms.

9 Susana Bokobo (Repsol); Mr. Jorge Cabral (Receita Federal, Brazil); Mr. Hafiz Choudhury (M Group); Mr. Michael Durst (Attorney); Mr. Jan de Goede (International Bureau of Fiscal Documentation IBFD); Mr. Alvaro de Juan Ledesma (Repsol); Mr. Olav Fjells (Aker BP, Norway); Mr. Kwesi K. Obeng (Tax Justice Network Africa); Mr. Michael Kobetsky (University of Melbourne); Mr. Tomas Lassourd (Resource Governance Institute); Mr. Cephas Makunike (Tax Justice Network Africa); Ms. Nara Monkam (African Tax administration forum ATAF); Ms. Nana Okoh (Gold Fields Ghana Ltd); Mr. Moises Orozco (Servicio de Administraci n Tributaria SAT, Mexico); Mr.

10 Miguel Pecho (Inter-American Centre on Tax Administrations CIAT); Mr. Richard Stern (World Bank Group); Mr. Chris Sanger (Ernest & Young EY); Mr. Karl Schmalz ( United States Council for International Business); Mr. Brian Twomey (Reverse Engineering Services Ltd); Ms. An Theeuwes (Shell); Mr. Marius van Oordt (African Tax Institute); and Mr. Christophe Waerzeggers (International Monetary Fund IMF). Chapter 5 of the Handbook , on transfer pricing, was prepared with extensive assistance of Mr. Joe Andrus, Ms. Melinda Brown (OECD), Ms. Monique van Herksen (Simmons & Simmons), Mr. Toshio Miyatake (Adachi, Henderson, Miyatake & Fujita), and Ms.