Annex 1. SSA Resource-Intensive Countries—Fiscal Regime Summary
Summary of Fiscal Regimes for Mining
Summary of Fiscal Regimes for Mining
| Royalty | Resource rent tax | Corporate income tax (mining) | Other instruments | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Rate (percent) | Base | RRT type | Tax rate (percent) | CapEx | Interest cost recoverable | Tax rate (percent) | Interest limitations | Alternative minimum tax | State participation (percent) | ||
| Botswana | 3–10 | Net | Variable income tax | 22–70 | Expensed | Yes | 22 | EBITDA (30%) | — | 15(W) | |
| Burkina Faso | Price-based | Gross | — | — | — | — | 27.5 | EBITDA(15%), Rate cap | Yes | 10(F) | |
| Central African Republic | 3–7 | Gross | — | — | — | 30 | Rate cap | Yes | — | ||
| Democratic Republic of the Congo | 1–10 | Net | Excess profits tax | 50 | Depreciated | Yes | 30 | Deduction cap | Yes | 10(F) | |
| Ghana | 5 | Net | Rate of return | 10 | Expensed | No | 35 | Thin cap (3:1) | — | 10(F) | |
| Guinea | 3–5 | Gross | — | — | — | — | 30 | EBITDA (15%) | Yes | — | |
| Liberia | 4.5 | Gross | Rate of return | 20 | Expensed | No | 30 | Deduction cap | Yes | — | |
| Mali | 3 | Gross | — | — | — | — | 30 | Thin cap (1:1), Rate cap | Yes | 10(F) | |
| Namibia | 3–10 | Gross | — | — | — | — | 35–50 | Thin cap (3:1) | — | — | |
| Niger | Variable | Gross | — | — | — | — | 30 | Thin cap (2:1), Rate cap | Yes | 10(F) | |
| Sierra Leone | 3–8 | Gross | Rate of return | Variable | Expensed | Yes | 25 | Thin cap (3:1) | Yes | 15(F) | |
| South Africa | 0.5–7 | Gross | Variable income tax | 0–34 | Expensed | Yes | 28–32 | EBITDA (40%) | — | — | |
| Tanzania | 3–5 | Gross | — | — | — | — | 25–30 | Thin cap (7:3) | Yes | 16(F) | |
| Zambia | 5–6 | Gross | Export duty | 15–35 | EBITDA (30%) | — | — | ||||
| Zimbabwe | 1–15 | Net | Rate of return | 28–31 | Expensed | No | 15 | Thin cap (3:1) | — | — | |
Summary of Fiscal Regimes for Mining
| Royalty | Resource rent tax | Corporate income tax (mining) | Other instruments | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Rate (percent) | Base | RRT type | Tax rate (percent) | CapEx | Interest cost recoverable | Tax rate (percent) | Interest limitations | Alternative minimum tax | State participation (percent) | ||
| Botswana | 3–10 | Net | Variable income tax | 22–70 | Expensed | Yes | 22 | EBITDA (30%) | — | 15(W) | |
| Burkina Faso | Price-based | Gross | — | — | — | — | 27.5 | EBITDA(15%), Rate cap | Yes | 10(F) | |
| Central African Republic | 3–7 | Gross | — | — | — | 30 | Rate cap | Yes | — | ||
| Democratic Republic of the Congo | 1–10 | Net | Excess profits tax | 50 | Depreciated | Yes | 30 | Deduction cap | Yes | 10(F) | |
| Ghana | 5 | Net | Rate of return | 10 | Expensed | No | 35 | Thin cap (3:1) | — | 10(F) | |
| Guinea | 3–5 | Gross | — | — | — | — | 30 | EBITDA (15%) | Yes | — | |
| Liberia | 4.5 | Gross | Rate of return | 20 | Expensed | No | 30 | Deduction cap | Yes | — | |
| Mali | 3 | Gross | — | — | — | — | 30 | Thin cap (1:1), Rate cap | Yes | 10(F) | |
| Namibia | 3–10 | Gross | — | — | — | — | 35–50 | Thin cap (3:1) | — | — | |
| Niger | Variable | Gross | — | — | — | — | 30 | Thin cap (2:1), Rate cap | Yes | 10(F) | |
| Sierra Leone | 3–8 | Gross | Rate of return | Variable | Expensed | Yes | 25 | Thin cap (3:1) | Yes | 15(F) | |
| South Africa | 0.5–7 | Gross | Variable income tax | 0–34 | Expensed | Yes | 28–32 | EBITDA (40%) | — | — | |
| Tanzania | 3–5 | Gross | — | — | — | — | 25–30 | Thin cap (7:3) | Yes | 16(F) | |
| Zambia | 5–6 | Gross | Export duty | 15–35 | EBITDA (30%) | — | — | ||||
| Zimbabwe | 1–15 | Net | Rate of return | 28–31 | Expensed | No | 15 | Thin cap (3:1) | — | — | |
Annex 2. Mining Revenue Payments in African EITI Countries
EITI payments data from the region indicates a variety of approaches to raising revenue from mining. Based on 2014–15 EITI reports that break down payments by head of revenue,1 several observations can be drawn for EITI-reporting countries:
Royalties contributed more than 25 percent of total payments in reporting countries, with the exception of Liberia and Mali at about 15 percent (Annex Figure 2.1).
Corporate taxes represented more than 15 percent of total payments. The only exceptions were Liberia and Sierra Leone, both below 5 percent.
Taxes on mining company goods and trade (excises, customs duties and export taxes) are contributing materially to total payments. In Burkina Faso, Guinea, Mali, and Zambia, these represent more than 15 percent of total payments. In Ghana, Niger, Liberia, Sierra Leone, and Tanzania, however, these payments contribute less than 15 percent.
The source of remaining payments varies considerably. Ghana for example received about 38 percent of payments from state participation cash flows (that is, dividends, either paid directly to government or via SOEs). In contrast, Sierra Leone received around 18 percent of payments from license fees.
Taxes based on economic rents made no contribution to total payments in African EITI countries, given their limited use in the region at the time.2
Mining Fiscal Regime Payments by MNEs, EITI Countries, 2014–15
Citation: Departmental Papers 2021, 022; 10.5089/9781513594361.087.A999
Sources: EITI; and IMF.Mining Fiscal Regime Payments by MNEs, EITI Countries, 2014–15
Citation: Departmental Papers 2021, 022; 10.5089/9781513594361.087.A999
Sources: EITI; and IMF.Mining Fiscal Regime Payments by MNEs, EITI Countries, 2014–15
Citation: Departmental Papers 2021, 022; 10.5089/9781513594361.087.A999
Sources: EITI; and IMF.The EITI data suggest that inefficient revenue instruments contribute substantively to total payments within mining fiscal regimes. Taxes on mining inputs and on trade are “lose-lose” for the region, increasing compliance costs for investors and administrative burdens on governments, while harming the overall attractiveness of mining in the region. Whether this pattern of revenue is attributable solely to MNE tax avoidance is unclear, but it is plausible that countries have attempted to “diversify” revenue sources. Combating profit shifting could therefore be associated with material improvements to the fiscal regimes of many countries in the region, which would also have a greater impact on investment attractiveness than income tax cuts or other incentives.
Annex 3. African Mining Sector Revenue Losses from MNE Profit Shifting
Chapter 3 presents estimates of potential revenue losses in Africa from MNE profit shifting to avoid CIT in producing countries. These estimates are based on a 2021 IMF Working Paper (WP) by Beer and Devlin examining the sensitivity of extractive industry MNE profits to international differen-tials in CIT rates.
Using relationships estimated in the paper, the authors also provide global estimates of the magnitude of MNE profit shifting in the extractive indus-tries.1 For this joint AFR-FAD paper, the authors have also provided estimates of potential revenue losses for sub-Saharan Africa.
Estimated Relationship Between International Tax Rate Differentials and Profit Shifting
Annex Figure 3.1 illustrates tax revenue losses as a function of tax avoidance incentives, using the estimated relationships in the WP. The x-axis shows differences between the local CIT rate and the average CIT rate of offshore related parties (that is, members of the corporate group). The larger the differential between local and offshore tax rates, the greater the benefit from international profit shifting and hence more of the tax base in producing countries is at risk to tax avoidance.
As outlined in the WP, the sensitivity of mining MNEs to tax rate differentials (solid lines) is estimated to be higher than for petroleum MNEs (dashed lines).2 For example, mining MNEs that are not constrained by thin capitalization rules may relocate up to 60 percent of the corporate tax base (in producing countries) offshore if faced with a tax rate differential of 10 percent (that is, local taxes are 10 percentage points higher than the average offshore rate—purple line in Annex Figure 3.1). The WP also provided strong evidence that the potential revenue at risk from profit shifting is markedly higher if no interest limitation rules are applied (orange lines in Annex Figure 3.1).
Simulated Relationships Between Tax Rate Differentials and CIT Revenue Loss
(Percent)
Citation: Departmental Papers 2021, 022; 10.5089/9781513594361.087.A999
Source: IMF.Simulated Relationships Between Tax Rate Differentials and CIT Revenue Loss
(Percent)
Citation: Departmental Papers 2021, 022; 10.5089/9781513594361.087.A999
Source: IMF.Simulated Relationships Between Tax Rate Differentials and CIT Revenue Loss
(Percent)
Citation: Departmental Papers 2021, 022; 10.5089/9781513594361.087.A999
Source: IMF.Deriving Revenue Loss Estimates from Estimated Profit Shifting Sensitivity
As noted above, the WP provided estimates (“simulations”) of total global potential revenue losses. The semi-elasticities underlying the simulations were estimated using average tax rate differentials as explanatory variables.
To quantify the revenue effects from profit shifting, the simulation exercise for SSA follows this same approach and uses the same average tax rate differentials for each country in Africa that has mining (and with enough data for country estimates to be produced). Country-specific revenue losses from profit shifting, expressed in terms of current revenue, are approximated using:
in which εi is a semi-elasticity of taxable profits with respect to international tax rate differentials and d τi is a tax rate differential.
Drawing on the W P, the simulation uses country-specific tax rate differentials and conditional semi-elasticities that vary depending on the presence of thin capitalization rules and the importance of mining revenues in total natural resource revenues to quantify revenue losses. In SSA economies, average tax rate differentials range between –13 and 17 percent, with an average of 4 percent. In a few countries, the tax rate differential is negative (that is, local CIT rates are lower than offshore average), meaning those countries could expect to see profit shifting in their direction.3
The regionwide estimate is then a weighted average of country-specific estimates, with the relative size of country-specific tax bases used as weights:
These regional estimates are presented in Chapter 2 of this paper (and Annex Table 3.1). With an average tax rate differential of about 4 percent, the region may be losing about $600 million in tax revenue annually due to profit shifting in the mining sector.4
Simulated Revenue Losses
Simulated Revenue Losses
| Average tax rate differential (percent) | Revenue loss (mn USD) | |
|---|---|---|
| Using WP Panel Data | 4.14 | 600 |
Simulated Revenue Losses
| Average tax rate differential (percent) | Revenue loss (mn USD) | |
|---|---|---|
| Using WP Panel Data | 4.14 | 600 |
Estimation Issues
There is uncertainty about the true magnitude of international profit shifting. Some of the issues affecting the estimates are discussed here.
Use of Average Offshore Tax Rates
Using an average offshore tax rate to calculate country tax differentials (and motives for profit shifting) is an approximation for the “real-world” tax rates MNEs face. In practice, an MNE group’s low-tax locations will be the primary vehicles for most profit shifting (that is, we should be most interested in a 5 percent tax rate affiliate than those entities in the group that are facing a 30 percent CIT rate).
For this reason, it is likely to be that using an average of all offshore tax rates the group faces to calculate the tax differential actually narrows the tax rate differential more than the true differential, and therefore understate the true incentive to profit shift. As noted above, the higher the differential, the higher will be the simulated tax revenue losses.5
Accounting for Uncertainty in Profit Shifting Simulations
Equation (A.1) shows that two types of uncertainty may affect the accuracy and magnitude of country-specific revenue loss estimates:
Uncertainty concerning the true semi-elasticity. The semi-elasticity is estimated using a limited number of observations and the actual sensitivity of taxable profits may differ from this estimate. As reported in Chapter 2, the WP reports an average semi-elasticity of 3.5, which is associated with a standard error of 0.6. If the underlying estimation errors are normally distributed, the true semi-elasticity lies, with a probability of 90 percent, between 2.5 and 4.5.
Uncertainty concerning the true tax rate differential. The simulation uses (unweighted) average tax rate differences between a given affiliate and the rest of its corporate group to approximate profit shifting incentives. However, this variable may be subject to measurement error and specific entities within the group may be more heavily used than others (as noted in previous issue). Cross-country variation in tax rate differentials informs the upper bound on this type of uncertainty.6 The standard deviation of foreign tax rates is 0.06, implying that actual tax rate differences could be up to 10 percent smaller or larger than the country-specific differential recorded.
Regionwide Revenue Losses (millions of US dollars)
Regionwide Revenue Losses (millions of US dollars)
| Tax rate differential | |||
|---|---|---|---|
| Baseline | Upper Bound | ||
| Semi-elasticity | Baseline | 600 | 1,230 |
| Upper Bound | 732 | 1,527 | |
Regionwide Revenue Losses (millions of US dollars)
| Tax rate differential | |||
|---|---|---|---|
| Baseline | Upper Bound | ||
| Semi-elasticity | Baseline | 600 | 1,230 |
| Upper Bound | 732 | 1,527 | |
Annex Table 3.2 summarizes regional revenue losses when factoring in these different dimensions of uncertainty. The first column (“baseline”) depicts revenue losses assuming that the relevant tax rate differentials are known with certainty while allowing for imperfect knowledge of the semi-elasticity. Given that the semi-elasticity was estimated with narrow confidence bands, revenue losses are likely (probability of 90 percent) not to exceed $732 million, even when accounting for this source of uncertainty.
The first row shows the impact of treating tax rate differentials as a stochastic variable while taking the semi-elasticity to be deterministic. This dimension of uncertainty does have a more notable impact on simulated revenue losses, with the upper bound estimate ($1,230 million) now over double the baseline estimate. Finally, when both the semi-elasticity and the tax rate differential are treated as stochastic variables, the statistical distribution of simulated revenue losses becomes more dispersed and regionwide losses may reach up to $1,527 million.
Annex 4. The Role of Local Capacity in Tax Policy and Revenue Mobilization
A lack of capacity across government agencies is a cross-cutting issue that adds to the difficulty of raising revenue from mining in SSA.1 In the context of tax policy, local capacity broadly refers to the government’s ability to set out, and then meet its revenue-raising objectives. This means being able to:
set tax policy consistent with overall revenue strategy (and which encourages investment)
design tax and revenue legislation
negotiate fiscal terms (as occurs in some countries)
administer laws to help taxpayers understand their obligations, detect revenue leakages, and ensure that investors pay what they owe.
Numerous bodies across government have an important role in revenue mobilization—beyond the tax department. These agencies include, for example, line ministries such as a Ministry of Mines to regulate the sector and in some countries, collect royalty revenue; customs authorities to monitor cross-border trade and impose duties and taxes; government laboratories (or other processes) to test and verify mineral product characteristics; the judiciary to settle tax disputes in specialized tax law; and Members of Parliament to legislate tax reforms.
These bodies need to work coherently to raise revenue from mining. They must be resourced adequately, possess specialist expertise, and cooperate efec-tively based on shared policy goals, information, and analysis. Agencies also need to be actively monitoring for revenue risks and proactively searching for tax avoidance so that avoidance can be stopped quickly and be connected into international information networks with fellow resource producers (and beyond) to share information.
Annex 5. Statutory Company Tax Rates for Gold Producers Compared to General Rate
Annex Table 5.1 compares the statutory company tax rates against tax rates that apply to mining companies. During 2011–18, most countries had lower tax rates on mining relative to the general tax rate applied to other sectors (years where the general CIT rate is lower than the mining-specific rate are shaded green, mining tax rates lower than the general rate are shaded red).
In some countries, the lower tax rate was in the form of a lower legislated rate, while in others this effect arose due to legislated tax exemptions afforded to all mining companies. Resource rent taxes are included where they apply, as an indication of their prevalence (and as a reminder that there are other income and profit taxes that may be relevant).
Note, however, that these are the legislated rates, which could overstate the actual tax rate many companies are paying. This is because many investors are operating under resource contracts with fiscal terms that override tax legislation. This effect may also be seen where tax holidays have been negotiated with individual firms.
Mining CIT Rates vs Generally Applicable CIT Rates
Mining CIT Rates vs Generally Applicable CIT Rates
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | Comments | |||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Angola | CIT | General | 30 | 30 | 30 | 30 | 30 | Mining rate lower | |||
| CIT | Specific | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | ||
| Benin | CIT | General | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | Mining rate lower |
| CIT | Specific | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | ||
| Burkina Faso | CIT | General | 27.5 | 27.5 | 27.5 | 27.5 | 27.5 | 27.5 | 27.5 | 27.5 | Mining rate lower 2010–14 |
| CIT | Specific | 17.5 | 17.5 | 17.5 | 17.5 | 27.5 | 27.5 | 27.5 | 27.5 | ||
| Cameroon | CIT | General | 45 | 45 | 45 | 45 | 40 | 40 | 40 | 40 | No rate differential |
| Chad | CIT | General | 40 | 40 | 40 | 40 | 35 | 35 | 35 | 35 | No rate differential; 2018, RRT introduced |
| Republic of Congo | CIT | General | 35 | 34 | 33 | 30 | 30 | 30 | 30 | 30 | Mining rate lower 2010–13, then no differential |
| CIT | Specific | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | ||
| Democratic | CIT | General | 40 | 40 | 35 | 35 | 35 | 35 | 35 | 35 | |
| Republic of the Congo | Mining rate lower | ||||||||||
| CIT | Specific | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | ||
| Cote d’lvoire | CIT | General | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | |
| CIT | Specific | to 2017 – full CIT exemption for devt phase plus five yrs | 6.25 | Mining rate lower from 2012; RRT removed 2014 | |||||||
| Gabon | CIT | General | 35 | 35 | 30 | 30 | 30 | 30 | 30 | 30 | |
| CIT | Specific | 35 | 35 | 35 | 35 | 35 | 35 | Exemption likely makes effective mining rate lower | |||
| CIT | Specific | 2015–18 exmptn devt + 3–8 yrs | |||||||||
| Ghana | CIT | General | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | ’ General rate lower |
| CIT | Specific | 35 | 35 | 35 | 35 | 35 | 35 | 35 | |||
| Guinea | CIT | General | 35 | 35 | 35 | 35 | 35 | 35 | 35 | 25 | |
| CIT | Specific | 35 | 35 | 30 | 30 | 30 | 30 | 30 | 30 | Mining rate lower 2013–17, then general rate lower; RRT removed 2012 | |
| Kenya | CIT | General | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | No rate differential |
| Madagascar | CIT | General | 22 | 21 | 20 | 20 | 20 | 20 | 20 | 20 | ’ General rate lower |
| CIT | Specific | 25–0 | 25–0 | 25–0 | 25–0 | 25–0 | 25–0 | 25–0 | 25–0 | ||
| Mali | CIT | General | 35 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | Mining rate lower |
| CIT | Specific | 25 | 25 | 25 | 25 | 25 | 25 | 25 | |||
| Mauritania | CIT | General | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | |
| CIT | Specific | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | I Exemption makes mining rate slightly lower (if produciton starts) | |
| CIT | Specific | Up to 2018 – exemption for first 3 years of mining right | |||||||||
| Niger | CIT | General | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | Exemption makes mining rate lower |
| CIT | Specific | Up to 2018 – exemption for first 5 years of prodn | |||||||||
| Nigeria | CIT | General | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | Exemption makes mining rate lower |
| CIT | Specific | Up to 2018, CIT exemption for first 3 years of prodn (max 5) | |||||||||
| Senegal | CIT | General | 25 | 25 | 30 | 30 | 30 | 30 | 30 | 30 | Mining rate lower to 2012, then n.a. |
| CIT | Specific | to2012-exmt7yr | |||||||||
| Sierra Leone | CIT | General | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | |
| CIT | Specific | 30 | 30 | 30 | 30 | 30 | Same rate, but 2018 RRT was introduced | ||||
| South Africa | CIT | General | 28 | 28 | 28 | 28 | 28 | 28 | 28 | 28 | ’ Higher specific rate, but this is a maximum rate |
| CIT | Specific | 34 | 34 | 34 | 34 | 34 | 34 | 34 | 34 | ||
| Tanzania | CIT | General | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | No rate differential |
| CIT | Specific | 30 | 30 | 30 | |||||||
| Zimbabwe | CIT | General | 28 | 28 | 28 | 28 | 28 | 28 | 28 | 28 | 1 Specific rate lower |
| CIT | Specific | 15 | 15 | 15 | 15 | 15 | 15 | 15 | 15 | ||
Mining CIT Rates vs Generally Applicable CIT Rates
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | Comments | |||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Angola | CIT | General | 30 | 30 | 30 | 30 | 30 | Mining rate lower | |||
| CIT | Specific | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | ||
| Benin | CIT | General | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | Mining rate lower |
| CIT | Specific | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | ||
| Burkina Faso | CIT | General | 27.5 | 27.5 | 27.5 | 27.5 | 27.5 | 27.5 | 27.5 | 27.5 | Mining rate lower 2010–14 |
| CIT | Specific | 17.5 | 17.5 | 17.5 | 17.5 | 27.5 | 27.5 | 27.5 | 27.5 | ||
| Cameroon | CIT | General | 45 | 45 | 45 | 45 | 40 | 40 | 40 | 40 | No rate differential |
| Chad | CIT | General | 40 | 40 | 40 | 40 | 35 | 35 | 35 | 35 | No rate differential; 2018, RRT introduced |
| Republic of Congo | CIT | General | 35 | 34 | 33 | 30 | 30 | 30 | 30 | 30 | Mining rate lower 2010–13, then no differential |
| CIT | Specific | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | ||
| Democratic | CIT | General | 40 | 40 | 35 | 35 | 35 | 35 | 35 | 35 | |
| Republic of the Congo | Mining rate lower | ||||||||||
| CIT | Specific | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | ||
| Cote d’lvoire | CIT | General | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | |
| CIT | Specific | to 2017 – full CIT exemption for devt phase plus five yrs | 6.25 | Mining rate lower from 2012; RRT removed 2014 | |||||||
| Gabon | CIT | General | 35 | 35 | 30 | 30 | 30 | 30 | 30 | 30 | |
| CIT | Specific | 35 | 35 | 35 | 35 | 35 | 35 | Exemption likely makes effective mining rate lower | |||
| CIT | Specific | 2015–18 exmptn devt + 3–8 yrs | |||||||||
| Ghana | CIT | General | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | ’ General rate lower |
| CIT | Specific | 35 | 35 | 35 | 35 | 35 | 35 | 35 | |||
| Guinea | CIT | General | 35 | 35 | 35 | 35 | 35 | 35 | 35 | 25 | |
| CIT | Specific | 35 | 35 | 30 | 30 | 30 | 30 | 30 | 30 | Mining rate lower 2013–17, then general rate lower; RRT removed 2012 | |
| Kenya | CIT | General | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | No rate differential |
| Madagascar | CIT | General | 22 | 21 | 20 | 20 | 20 | 20 | 20 | 20 | ’ General rate lower |
| CIT | Specific | 25–0 | 25–0 | 25–0 | 25–0 | 25–0 | 25–0 | 25–0 | 25–0 | ||
| Mali | CIT | General | 35 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | Mining rate lower |
| CIT | Specific | 25 | 25 | 25 | 25 | 25 | 25 | 25 | |||
| Mauritania | CIT | General | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | |
| CIT | Specific | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | I Exemption makes mining rate slightly lower (if produciton starts) | |
| CIT | Specific | Up to 2018 – exemption for first 3 years of mining right | |||||||||
| Niger | CIT | General | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | Exemption makes mining rate lower |
| CIT | Specific | Up to 2018 – exemption for first 5 years of prodn | |||||||||
| Nigeria | CIT | General | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | Exemption makes mining rate lower |
| CIT | Specific | Up to 2018, CIT exemption for first 3 years of prodn (max 5) | |||||||||
| Senegal | CIT | General | 25 | 25 | 30 | 30 | 30 | 30 | 30 | 30 | Mining rate lower to 2012, then n.a. |
| CIT | Specific | to2012-exmt7yr | |||||||||
| Sierra Leone | CIT | General | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | |
| CIT | Specific | 30 | 30 | 30 | 30 | 30 | Same rate, but 2018 RRT was introduced | ||||
| South Africa | CIT | General | 28 | 28 | 28 | 28 | 28 | 28 | 28 | 28 | ’ Higher specific rate, but this is a maximum rate |
| CIT | Specific | 34 | 34 | 34 | 34 | 34 | 34 | 34 | 34 | ||
| Tanzania | CIT | General | 30 | 30 | 30 | 30 | 30 | 30 | 30 | 30 | No rate differential |
| CIT | Specific | 30 | 30 | 30 | |||||||
| Zimbabwe | CIT | General | 28 | 28 | 28 | 28 | 28 | 28 | 28 | 28 | 1 Specific rate lower |
| CIT | Specific | 15 | 15 | 15 | 15 | 15 | 15 | 15 | 15 | ||
Annex 6. Action Items to Combat Profit Shifting
Outside the scope of this paper but also essential is ensuring mineral testing and weighing functions are operating to accurately assess weights and mineral grades.
As CIT and royalties are calculated on different bases, the calculation for each may be different (for example, royalties are usually calculated without consideration of deductible expenses such as marketing fees).
For further information on this issue, see Platform for Collaboration on Tax Toolkit.
| Recommended Action | How to Achieve | Targeted Outcome |
|---|---|---|
| Action 1: Interest Deductions | ||
| Set annual limits on interest deductions for CIT. | A limit on interest deductions removes the need for tax authorities to examine the facts and circumstances around related-party borrowing. | Interest deductions capped. Reduced transfer pricing analysis. |
| Existing investors could be afforded a carry-forward of deductions exceeding the yearly limit as a form of “grandfathering.” | Incentives for debt push downs reduced. | |
| This could be combined with a requirement that all lending (even below the limit) be commercially justified. | ||
| Ensure definition of “interest” includes other expenses which are economically similar. | Define interest (that would be subject to limitations) to include payments that are lieu of interest (for example, loan fees). | Interest limitation harder to circumvent. |
| Action 2: Lock in Source Taxing Rights | ||
| Review domestic definition of permanent establishment to ensure services are captured. | Amend domestic definition of a “permanent establishment” to include services rendered in connection with mine operations. | Ensure services are included within the domestic law definition. |
| Ensure domestic tax law includes taxation of capital gains. | Amend domestic tax provisions to include gains from the sale of mine assets, whether those sales occur domestically or offshore. | Domestic right to tax capital gains is established. |
| Action 3: Combat Abusive Transfer Pricing | ||
| Establish pricing guidelines for all mineral sales made to related parties.1 | Where sales are made to related parties, it is essential to review pricing approaches against established practices for the sale of that mineral product.2 | Pricing methodology agreed with investor for each mineral sold to related parties. |
That means:
| No transfer pricing analysis required. | |
| Authorities should provide guidance to taxpayers setting out which reference prices and price adjustments are permissible. | ||
| Impose limits on tax deductions for marketing and logistics. | In the case of payments made to related parties in low tax jurisdictions, require taxpayers to substantiate the actual cost incurred by the offshore entity in providing those services (in place of commissions that are applied as a percentage of the value of a shipment). | Profit shifting via marketing and logistics fees is limited. |
| Less transfer pricing analysis. | ||
| By doing so, corporate entities in offshore jurisdictions would be less able to rely on intermediary entities with little substantive presence. | ||
| Action 4: Strengthen Double Tax Treaties | ||
| Limit treaty shopping by inbound investors by adopting the MLI (or adopting its protections bilaterally). | Tax treaty shopping could be limited by joining the MLI. | Limits opportunities for treaty shopping. |
| Alternatively, countries could re-negotiate treaties to adopt the protections developed under the BEPS process and to identify existing treaties with greatest tax base risks. | Withholding tax reductions in treaties more narrowly confined. | |
| As a first step, prioritize those countries representing the major sources of inbound investment. | ||
| Maintain non-zero withholding taxes on royalty and service fee payments. | Develop a tax treaty policy that maintains a minimum withholding tax on interest, service payments, management fees and royalties. | Outbound income flows have some “minimum” tax applied. |
| Expand treaty definition of “immovable property”. | Treaty definition should be expanded to ensure it covers indirect transfers of interests in mining assets (building on similar domestic law definition). | Strengthens producing country’s rights to tax offshore indirect transfers. |
| Action 5: Limit the Use of Incentives | ||
| Confine tax incentives to most efficient options. | Tax holidays should be immediately removed from the suite of incentives offered to investors. | Tax incentives limited or phased out completely. |
| Incentives could be confined to indirect tax and customs duty exemptions, accelerated depreciation and/or tax stabilization (incorporating Step 5 below). Any incentives afforded should also include a “sunset” provision, imposing a time limit. | ||
| Adopting a regional approach to incentives would greatly reduce pressures for tax competition. | ||
| Connect dedicated resource rent tax rate to the CIT rate. | For those countries with excess profits or resource rent taxes, the tax rate can be calculated with reference to the standard company tax rate. | Protects revenue by ensuring investors do not receive windfall gains if tax rates are cut after investments have been made. |
| Impose tax on post CIT cash flows. This means any CIT avoided can be “picked up” by the rent tax. | ||
| Adopt anti avoidance provisions to limit transactions with related parties. | For countries with SEZs offering reduced tax rates, the preferential rate could be removed where company income or tax deductions exceed a threshold level with related parties domestically (for example, 20 percent or more). | Limits potential for domestic transfer pricing. |
| Action 6: Offshore Indirect Transfers (for those countries taxing capital gains) | ||
| Impose reporting requirement on local entities. | Companies in producing countries should be required to report material changes in ownership of the mine when they occur offshore, removing the need to monitor international jurisdictions for transactions that may be liable for local CGT.3 | Authorities have increased awareness of transfers that may be liable to CGT. Reduces administrative burden on capacity constrained administrations. CGT on offshore transfers is protected. |
| Impose CGT liability on local entity for offshore transfer. | Adopting either of the two “model” approaches outlined in the PCT toolkit:
| |
| Action 7: Investor Negotiations | ||
| Limit scope of stabilization provisions for investors, if used. | Develop a standardized model clause on stabilization that is afforded to investors if needed. This would afford SSA economies greater balance in ensuring their tax systems can evolve with international developments. | Stabilization limited to narrow range of fiscal terms and time bound. |
| Apply time limits to stabilization, for example, when 2–3 years of production have occurred. | ||
| Strengthen negotiation capacity with investors and review of revenue cost. | Include tax department in negotiations, and if local capacity is low, include external support for negotiations (for example, to assist with the negotiations themselves or provide analytical/ legal support to inform decisions). | All negotiations with investors on fiscal terms conducted with specialist expertise. |
Outside the scope of this paper but also essential is ensuring mineral testing and weighing functions are operating to accurately assess weights and mineral grades.
As CIT and royalties are calculated on different bases, the calculation for each may be different (for example, royalties are usually calculated without consideration of deductible expenses such as marketing fees).
For further information on this issue, see Platform for Collaboration on Tax Toolkit.
| Recommended Action | How to Achieve | Targeted Outcome |
|---|---|---|
| Action 1: Interest Deductions | ||
| Set annual limits on interest deductions for CIT. | A limit on interest deductions removes the need for tax authorities to examine the facts and circumstances around related-party borrowing. | Interest deductions capped. Reduced transfer pricing analysis. |
| Existing investors could be afforded a carry-forward of deductions exceeding the yearly limit as a form of “grandfathering.” | Incentives for debt push downs reduced. | |
| This could be combined with a requirement that all lending (even below the limit) be commercially justified. | ||
| Ensure definition of “interest” includes other expenses which are economically similar. | Define interest (that would be subject to limitations) to include payments that are lieu of interest (for example, loan fees). | Interest limitation harder to circumvent. |
| Action 2: Lock in Source Taxing Rights | ||
| Review domestic definition of permanent establishment to ensure services are captured. | Amend domestic definition of a “permanent establishment” to include services rendered in connection with mine operations. | Ensure services are included within the domestic law definition. |
| Ensure domestic tax law includes taxation of capital gains. | Amend domestic tax provisions to include gains from the sale of mine assets, whether those sales occur domestically or offshore. | Domestic right to tax capital gains is established. |
| Action 3: Combat Abusive Transfer Pricing | ||
| Establish pricing guidelines for all mineral sales made to related parties.1 | Where sales are made to related parties, it is essential to review pricing approaches against established practices for the sale of that mineral product.2 | Pricing methodology agreed with investor for each mineral sold to related parties. |
That means:
| No transfer pricing analysis required. | |
| Authorities should provide guidance to taxpayers setting out which reference prices and price adjustments are permissible. | ||
| Impose limits on tax deductions for marketing and logistics. | In the case of payments made to related parties in low tax jurisdictions, require taxpayers to substantiate the actual cost incurred by the offshore entity in providing those services (in place of commissions that are applied as a percentage of the value of a shipment). | Profit shifting via marketing and logistics fees is limited. |
| Less transfer pricing analysis. | ||
| By doing so, corporate entities in offshore jurisdictions would be less able to rely on intermediary entities with little substantive presence. | ||
| Action 4: Strengthen Double Tax Treaties | ||
| Limit treaty shopping by inbound investors by adopting the MLI (or adopting its protections bilaterally). | Tax treaty shopping could be limited by joining the MLI. | Limits opportunities for treaty shopping. |
| Alternatively, countries could re-negotiate treaties to adopt the protections developed under the BEPS process and to identify existing treaties with greatest tax base risks. | Withholding tax reductions in treaties more narrowly confined. | |
| As a first step, prioritize those countries representing the major sources of inbound investment. | ||
| Maintain non-zero withholding taxes on royalty and service fee payments. | Develop a tax treaty policy that maintains a minimum withholding tax on interest, service payments, management fees and royalties. | Outbound income flows have some “minimum” tax applied. |
| Expand treaty definition of “immovable property”. | Treaty definition should be expanded to ensure it covers indirect transfers of interests in mining assets (building on similar domestic law definition). | Strengthens producing country’s rights to tax offshore indirect transfers. |
| Action 5: Limit the Use of Incentives | ||
| Confine tax incentives to most efficient options. | Tax holidays should be immediately removed from the suite of incentives offered to investors. | Tax incentives limited or phased out completely. |
| Incentives could be confined to indirect tax and customs duty exemptions, accelerated depreciation and/or tax stabilization (incorporating Step 5 below). Any incentives afforded should also include a “sunset” provision, imposing a time limit. | ||
| Adopting a regional approach to incentives would greatly reduce pressures for tax competition. | ||
| Connect dedicated resource rent tax rate to the CIT rate. | For those countries with excess profits or resource rent taxes, the tax rate can be calculated with reference to the standard company tax rate. | Protects revenue by ensuring investors do not receive windfall gains if tax rates are cut after investments have been made. |
| Impose tax on post CIT cash flows. This means any CIT avoided can be “picked up” by the rent tax. | ||
| Adopt anti avoidance provisions to limit transactions with related parties. | For countries with SEZs offering reduced tax rates, the preferential rate could be removed where company income or tax deductions exceed a threshold level with related parties domestically (for example, 20 percent or more). | Limits potential for domestic transfer pricing. |
| Action 6: Offshore Indirect Transfers (for those countries taxing capital gains) | ||
| Impose reporting requirement on local entities. | Companies in producing countries should be required to report material changes in ownership of the mine when they occur offshore, removing the need to monitor international jurisdictions for transactions that may be liable for local CGT.3 | Authorities have increased awareness of transfers that may be liable to CGT. Reduces administrative burden on capacity constrained administrations. CGT on offshore transfers is protected. |
| Impose CGT liability on local entity for offshore transfer. | Adopting either of the two “model” approaches outlined in the PCT toolkit:
| |
| Action 7: Investor Negotiations | ||
| Limit scope of stabilization provisions for investors, if used. | Develop a standardized model clause on stabilization that is afforded to investors if needed. This would afford SSA economies greater balance in ensuring their tax systems can evolve with international developments. | Stabilization limited to narrow range of fiscal terms and time bound. |
| Apply time limits to stabilization, for example, when 2–3 years of production have occurred. | ||
| Strengthen negotiation capacity with investors and review of revenue cost. | Include tax department in negotiations, and if local capacity is low, include external support for negotiations (for example, to assist with the negotiations themselves or provide analytical/ legal support to inform decisions). | All negotiations with investors on fiscal terms conducted with specialist expertise. |
Outside the scope of this paper but also essential is ensuring mineral testing and weighing functions are operating to accurately assess weights and mineral grades.
As CIT and royalties are calculated on different bases, the calculation for each may be different (for example, royalties are usually calculated without consideration of deductible expenses such as marketing fees).
For further information on this issue, see Platform for Collaboration on Tax Toolkit.
Annex 7. IMF Support for Resource-Rich Economies in Sub-Saharan Africa
Taxation issues are central to all core functions of the IMF’s engagement with resource-rich developing countries—surveillance, lending, and capacity development —focusing on individual countries, on regions, and on international spillovers. Due to its specialized expertise and ability to integrate policy, administrative and legislative dimensions, the IMF helps developing countries build institutions and capacity to turn their natural resource wealth into sustainable development. IMF support has made use of various diagnostic and analytical tools—including the Tax Administration Diagnostic Assessment Tool (TADAT) and Fiscal Analysis for Resource Industries (FARI)— complemented by the work of the IMF’s regional technical assistance centers. While the engagement is multifaceted, domestic revenue mobilization efforts concentrate on capacity development under specially designed thematic funds and international taxation mainstreaming.
The Managing Natural Resource Wealth Tematic Fund (MNRW-TF) supports capacity building in resource-rich low and lower-middle income countries. The key emphasis is on the design, implementation and administration of the tax and non-tax fiscal regime for extractive industries while also supporting macro-fiscal revenue management and statistics. Nearly 20 SSA countries have benefitted from MNRW-TF assistance through country-specific and regional projects since the launch of the Fund in 2011. The MNRW-TF also supports the IMF’s research and analytical work on managing natural resource wealth, identifying good practices, and distilling lessons from experiences. Recent publications include two fagship publications on the fiscal regime for mining and petroleum, a handbook on revenue administration of extractives, and a public release of the IMF’s FARI model to perform extractive industry fiscal analysis. Capacity building is delivered through multiple channels, including technical advice tailored to country needs and implementation capacity reinforced by expert support for the implementation of reforms. Technical Assistance on natural resource taxation is also provided to countries that are unable to access the MNRW-TF.
International tax issues arise frequently in the country-specific advice and the training offered to IMF member countries each year. Increasing attention is being paid to international taxation spillovers including the importance of securing the tax base on inbound investment for developing countries. Since 2016 and as a part of Article IV consultations, international taxation main-streaming has been undertaken in 25 countries worldwide, including four SSA countries—Kenya, Mali, Tanzania, and Uganda—with more in process.
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See for example, the African Union’s African Mining Vision, adopted in 2009 that urged Africa to be “ . . . thinking about how mining can contribute better to local development by making sure workers and communities see real benefits from large-scale industrial mining . . . ” (African Union 2009).
To enable a focused examination of the particular circumstances in mining, the analysis conducted in this paper excludes oil and gas production.
SSA countries defined as resource-intensive (IMF Sub-Saharan Africa Regional Economic Outlook) are: Botswana, Burkina Faso, Central African Republic, Democratic Republic of the Congo, Ghana, Guinea, Liberia, Mali, Namibia, Niger, Sierra Leone, South Africa, Tanzania, Zambia, and Zimbabwe. The definition used in this paper excludes petroleum.
This is based on quantities produced.
Democratic Republic of the Congo, Guinea, Burkina Faso, Mali, Sierra Leone, Liberia, Ghana, Namibia, Madagascar, and Botswana.
Data exclude diamonds.
See for example, https://blogs.platts.com/2019/01/23/can-africas-mines-sector-shake-of-investors-negative-perceptions/
Nine of the 15 resource-intensive countries in the region participate in EITI. Data presented use latest available for each country (most are 2014 or 2015, given lags in reporting).
Guinea was also affected by the pandemic, but CIT remained more than 15 percent of total payments.
De Beers is part of the MNE Anglo American.
See also, for example, the “Illicit Financial Flow” report of the High-Level Panel on Illicit Financial Flows from Africa (United Nations 2015), which includes concerns around tax avoidance, as well as tax evasion and criminality/corruption.
This study included petroleum.
Conceptually, state participation dividends should also capture this upside because they are distributions of corporate profits in producing countries.
In an additional five countries, legislation does not explicitly include/exclude mining.
Mansour (2014) notes that the 1980s–90s was a period when mining in the region was “not properly taxed,” an additional factor that may be infuencing more recent revenue performance as the region may still be experiencing a hangover from these earlier policies if resource contracts were used (and are still operational).
This is because the international tax framework relies largely on separate accounting, whereby an MNE is taxed at the level of individual subsidiaries operating in different countries – for further discussion see Beer and Loeprick (2018).
Known as a “semi-elasticity.”
See discussion in Devereux (2021).
Complexity is a measure of how many different industry sectors the MNE group operates in, with the theory being that these groups are more difficult to audit, tend to have more cross-border transactions, and those transactions are more varied. Intangible assets can be difficult to value, providing scope for tax planning (although in mining MNE groups other asset groups such as plant and machinery assets tend to be much higher).
See discussion in Laporte and de Quatrebarbes (2015).
The Accounting Directive 2013/34/EU requires European-based MNEs to record their payments to governments worldwide since 2014. The Canadian analog of these reporting obligations – the Extractive Sector Transparency Measures Act – came into effect in 2015.
The Resource Revenue Database records information gathered by IMF desk economists for 74 countries.
Petroleum MNEs were found to be less sensitive to tax rate differentials, with a semi-elasticity at about 1 percentage point lower than mining firms. Potential reasons for this divergence are discussed in Beer and Devlin (2021).
See Beer and Loeprick (2018) and Barrios and others (2018).
The strength of local capacity to formulate tax policy and raise revenue is examined in Annex 3 as a “cross-cutting” issue.
This paper adopts the OECD definition of an investment hub for countries with FDI exceeding 150 percent of GDP.
This paper follows the general tax characteristics outlined in Beer and Loeprick (2018).
More recently, however, Mauritius enacted tax changes to remove “potentially harmful” elements of its tax system and limit access to treaty benefits (OECD 2019), which may have some impact on the pattern of new inbound investment into Africa if tax differentials narrow (existing investors are protected).
In addition, many tax advisors have enthusiastically promoted these arrangements. See, for example, Deloitte’s promotion of certain qualifying investment entities in Mauritius that faced a maximum effective tax rate of 3 percent (Deloitte Mauritius 2013).
For Burkina Faso, the agreement came into force in February 2021; South Africa has yet to ratify the MLI.
These tax treaties have been nominated as “covered tax agreements” under the MLI. Burkina Faso in contrast has a limited treaty network that does not cover these countries.
In Liberia for example, auditors were usually expected to complete audits within a fixed time limit (several months) with completion linked to their performance evaluation—a disincentive to take on a complex audit of a mining MNE that could take a year or more unless senior managers expressed clear support.
Some observers, for example Vann and Cooper (2016), note that OECD guidelines set an unduly high standard as to how similar transactions must be considered “comparable.” This provides scope for disputes between tax authorities and taxpayers about how a transaction should be analyzed.
Source: IBFD. Liberia has a fixed cap on interest, although its design may make it relatively straightforward to circumvent.
Recent OECD transfer pricing guidance may make it possible to combat this arrangement using transfer pricing rules—if it could be established that no independent parties would enter into such a loan. Challenging the arrangement in this way, however, would be exceptionally difficult for low-capacity tax authorities given the asymmetries in legal capabilities with larger MNEs and the high degree of subjectivity in establishing just what independent parties would and would not do in these circumstances.
As stated by the Confederation of British Industry in its submission to the OECD BEPS process: “to partially mitigate the one-sided risks carried by the mining company [where the government will repay its equity stake from future project profits], they [companies] will often also introduce shareholder debt . . . to enable the mining company’s investment to be at least partially repaid in priority.” (OECD 2015).
In this circumstance, the firm need not process the mineral into a grade that would be widely traded in transparent markets, making it more difficult to price.
See Zambia vs Mopani Copper Mines Plc., May 2020, Supreme Court of Zambia, Case No 2017/24.
See press release of Kumba Iron Ore, at: https://www.angloamericankumba.com/media/press-releases/2017/03–02-2017.
For example, a gold concentrate product could pay royalties based on the value of the percentage of gold in the product (multiplied by a recognized international reference price such as the LBMA gold price).
There can also be issues with taxing payments to subcontractors that are unrelated to the MNE, for work done in the producing country.
It may be that for those minerals with transparent international markets (for example, precious metals, copper) have more transactions because they may be more readily “priceable” by a larger pool of investors and financial analysts.
See outline of these issues in PCT (2020).
While it is not in any way illegal to ask for incentives, the concern is that these requests are being made by some investors.
See discussion in PCT (2015).
Based on a review of existing resource contracts published at www .resourcecontracts .org. This would be the case if existing investors elect to remain under their existing contracts. Any form of renegotiation would see the investor transition to the newly-legislated standard fiscal terms, however.
For an overview of resource rent taxes, see IMF (2012).
Other elements of tax reform (focused primarily on business models associated with the digitalization of economies—so-called Pillar 1), consciously exclude natural resources and maintain the broadly accepted consensus that location-specific rents associated with natural resources should be taxable in those countries where they arise.
As well as actions to slow the “brain drain” of skilled officers to higher-paying private firms such as accountancy firms, which can be a constant challenge.
In one recent example from Liberia, harnessing specialized mineral pricing expertise in a royalty price agreement (renegotiation) is expected to increase government royalty revenue from iron ore by between 14 and 24 percent between 2017 and 2026. See: https://oecd-development-matters.org/2020/06/18/negotiating-a-royalty-pricing-agreement-lessons-from-liberia/.
This would strengthen the right to impose withholding taxes on service payments, which may particularly assist countries with limited capacity in their tax authorities.
ATAF has prepared draft legislation, available at its website (www .ataftax .org).
Countries may consider reviewing existing treaties to identify those that are unbalanced, to prioritize renegotiation.
Currently in Article 13(4).
For further clarity, mining titles should be included in the definition of immovable assets where needed.
This is frequently referred to as “deeming” transaction to be a disposal of the underlying asset(s).
The toolkit also provides guidance on improving compliance, covering detection of offshore transfers, enforcement of tax laws, and tax collection.
While noting it did not implement the BEPS-advocated limitation based on earnings.
Nine countries defined as “resource intensive” participate in EITI. Data presented use latest available for each country (most are 2014 or 2015, given lags in reporting). Data for Guinea, Liberia, and Sierra Leone were affected by the Ebola epidemic that began in 2014.
For gold production, for example, no African country in the FERDI database had a resource rent tax by 2015 (Annex 5).
https://www.imf.org/en/Publications/WP/Issues/2021/01/15/Is-There-Money-on-the-Table-Evidence-on-the-Magnitude-of-Profit-Shifting-in-the-Extractive-49983 These estimates use the available panel data from the working paper, and so include countries in sub-Saharan Africa that have mining but may not be defined as one of the 15 “resource intensive” economies.
Petroleum MNEs are included for comparative purposes only, they are not included in the revenue estimates presented in this paper.
Mauritius, for example, is identified in this paper as having low tax rates that make it attractive to profit allocation.
To curb the effect of extreme outliers on the results, simulated tax base losses for one country have been winsorized since they exceeded the total potential tax base.
It is also worth noting the WP estimated linear relationships between tax rate differentials and shifted profits, which may not reflect the true “shape” of the relationship (for example, linear, quadratic or some other form—see discussion in Bratta, Santomartino, and Acciari 2021).
In the presence of measurement issues, tax rate differentials can be expressed as
For an outline of the state of capacity in the region, see for example, Tsafack Nanfosso (2011).
