MINING TAXATION AND ROYALTIES

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment
(Apr 2011)
CHAPTER 10A
MINING TAXATION AND ROYALTIES
James Macky
KPMG
Melbourne

JAMES MACKY is a partner in the Energy and Natural Resources Group at KPMG in Australia, having worked in KPMG's Melbourne and Adelaide offices for 15 years. James advises domestic and multi-national mining and energy companies on a broad range of local and cross border tax issues, including the provision of tax structuring, due diligence, capital management and general advisory services. James has participated in the recent mining tax debate in Australia through advising a key industry body on issues relating to the development of mining taxes in Australia, including through the preparation of reports and the drafting submissions to the government. James is a Senior Fellow at the Melbourne Law School at the University of Melbourne, teaching Resource and Environment Taxes in 2011.

April, 2011

James Macky

Tax Partner

KPMG in Australia

jmacky@kpmg.com.au

Roberto Haddad

Tax Partner

KPMG in Brazil

robertohaddad@kpmg.com.br

Taxation of mining in Australia

• Existing minerals tax regimes

• Resources Super Profits Tax (rejected)

• Minerals Resource Rent Tax (proposed)

• Lessons learned

Existing minerals tax regimes

• State (& Territory) governments in Australia impose royalties on minerals

• Royalties are typically ad valorem, varying between States and varying between mineral commodities

• State royalties income is estimated at $8.58 billion in 2010/11, with 51% from coal and 31% from iron ore

• Australian corporate income tax rate is 30% (reducing to 29% in 2013/14)

Rate	40% of mine profits
Income tax	Deductible
Losses	Uplifted at long-term bond rate
Capital expenditures	Depreciated
Application	Existing and new mining and petroleum projects
Transition	Book value of assets
State royalties	Refunded
Estimated 10 year revenues	$99 billion

Resources Super Profits Tax (rejected)

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Rate	30% of mine profits (reduced to 22.5% by 25% extraction allowance)
Income tax	Deductible
Losses	Uplifted at long-term bond rate plus 5%
Capital expenditures	Deductible up-front
Application	Existing and new coal and iron ore projects
Transition	Market value (or book value) of assets
State royalties	Credited (with uplift of long-term bond rate plus 5%)
Estimated 10 year revenues	$38.5 billion

Minerals Resource Rent Tax...