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Capturing capital gains tax on indirect transfers of mineral rights: the HOW TO

Dear Goxians

Do you remember that story happening in early May 2016:

The miner Freeport McMoRan sold its 56% controlling stake in the Tenke Fungurume copper mine - one of the biggest mining projects in the DRC - to China Molybdenum Inc. (CMOC) for $2.65 billion. The DRC received nothing from this deal.  Indeed, the DRC did not even know it was happening, despite owning a 20% equity stake in the project. This is because Freeport did not directly sell the Tenke Fungurume copper mine. Freeport sold its 70 % interest in TF Holdings Limited, a Bermuda holding company that owned an 80 % interest in Tenke Fungurume Mining SA, the company owning the mine. As a result, Freeport only owned its 56 % interest in Tenke Fungurume Mining SA and in the copper mine “indirectly”. It is the indirect stake that CMOC acquired. Thus, the acquisition of DRC mining rights was done in a jurisdiction outside of the DRC.

At CCSI and ISLP we decided to develop practical guidance for countries that would decide to tax capital gains arising from indirect transfer of the underlying assets situated in host countries.

We focus on all the issues that the governments of developing countries may wish to consider if they adopt a policy to tax such transfers.  In doing so, we examine and provide the language of the legislative and regulatory provisions employed by countries that have adopted such a policy to tax, and comments on the pros and cons of these provisions. We also consider the impact of bilateral tax treaties on this issue. 

The paper is available here: http://ccsi.columbia.edu/files/2017/10/Designing-a-legal-regime-to-...

We look forward to feedback!

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Comment by Antipas Massawe on November 1, 2017 at 9:34

Court case on the capital gain tax uncollected from the Mantra Resources Ltd- Uranium One transfer of mineral rights in Tanzania still going on as reported here: http://www.dailynews.co.tz/index.php/home-news/53912-court-grills-d...

Comment by Antipas Massawe on October 31, 2017 at 18:26

Dear Perrine, Thank you for sharing on how DRC and other mineral rich underdeveloped countries could earn their mineral taxes earlier in the form of capital gain taxes on the profits realized in the indirect transfers of mineral rights, rather than later in the form of corporate taxes on the profits realized after mining costs and other mineral taxes recovery. Many of us would be interested to know how to collect them because receiving the mineral taxes earlier enables to maximize the exploitation of their time potentials accrued from their earliest investing for profits. But, for my country Tаnzаnіа which started charging capital gain taxes on the cаpіtаl gаіns realized in transfers of mineral rights only recently, priority аctіon is to ensure the recoveries of mining capitals by the large scale gold miners operating in the country start generating mining revenues which carry corporate taxes for the government don’t cover the cаpіtаl gаіns which were not charged capital gain taxes by the government. Otherwise, the miners operating on mineral rights which carry capital gains which were not charged capital gаіn taxes should pay the uncharged capital gаіn taxes, plus interests. Follow-up of the uncollected capital gain taxes should apply to all large scale gold miners operating in the country because these are operating on mineral rights which changed hands several times uncharged capital gain taxes on the capital gains they were realizing, as well as the Uranium One miner operating on uranium rights in the country which changed hands once uncharged the same.

Comment by Perrine Toledano on October 31, 2017 at 8:54

So glad to know :)

Comment by Stephen Yeboah on October 31, 2017 at 4:50

Thanks for sharing, Perrine. This is very useful.

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