peruvian mining fiscal system minesouthamerica focus on peru
DESCRIPTION
Peruvian Mining Fiscal System MineSouthAmerica Focus on Peru. Marcial García Toronto, Wednesday 5, October,2011. Peruvian Mining Fiscal System at a Glance. Peruvian Mining Fiscal System at a Glance. - PowerPoint PPT PresentationTRANSCRIPT
Peruvian Mining Fiscal System
MineSouthAmerica Focus on PeruMarcial García
Toronto,Wednesday 5, October,2011
Peruvian Mining Fiscal SystemPage 2
Peruvian Mining Fiscal System at a Glance
Peruvian Mining Fiscal SystemPage 3
Peruvian Mining Fiscal System at a Glance
Corporate Income Tax Rate (%) 30 (a)
Capital Gains Tax Rate (%) 30
Branch Tax Rate (%) 30
Withholding Tax (%)
Dividends 4.1
Interest 4.99 or 30 (b) (c) (d)
Royalties 30 (d)
Technical Assistance 15
Branch Remittance Tax 4.1
Net Operating losses (years)
Carryback 0
Carryforward 4 years or Unlimited
a) If the taxpayer has elected to enter into a Stabilization Agreement under the Mining Law, the rate is increased by 2%.b) The reduced rate of 4.99% applies on certain interest payments to non-related parties.c) Interest on loans from related parties in excess of a 3.1 debt-to-equity ratio is not deductible.d) The Peru-Canada treaty rate is 15%.
Peruvian Mining Fiscal SystemPage 4
Peruvian Mining Fiscal System at a Glance (cont.)
VAT (%) 18
Asset Tax (%) 0.4
Mining Royalties (%) 1-3
Excess Profit Type Tax None
Import Duties (%) 0, 6, 11
Export Duties on Minerals None
Land Use Fee/Validity Tax US$ 3/ha/yr (e)
Workers Profit Sharing (%) 8
Transfer Pricing Rules Yes (f)
Tax Treaty with Canada Yes
e) Is calculated based on area of mining concession and is deductible. f) These rules are consistent with the OECD guidelines
Peruvian Mining Fiscal SystemPage 5
Peruvian Mineral Sector Fiscal Reform
Peruvian Mining Fiscal SystemPage 6
Tax climate – What are the hot issues today?
Mineral Sector Fiscal Reform
► June 5: Left-wing former army officer Ollanta Humala won Peru`s presidential election.
One of Humala´s key election promises was to make mining companies pay more taxes at a time of high prices for Peru´s major mineral products (such as copper, silver and gold) in the international market.
► August 25: Prime Minister, Salomon Lerner announced that the government had reached an agreement with mining companies to increase their contributions to the state by an extra US$ 1.1 billion.
► 14 September: President Humala´s administration submitted three different bills to the Peruvian Congress for approval.
► 19 September: Congress committees of (i) economy and (ii) energy and mines approved with minor changes proposed legislation.
► 22 September: The full assembly of Peru´s Congress approved mineral sector fiscal reform.
► 29 September: Laws 29788, 29789 and 29790 approving the Modified Royalties, Special Mining Tax (SMT) and Special Mining Burden (SMB), respectively, were enacted and published in the official Gazette “El Peruano”. The regulations of the SMB were approved by Supreme Decree 173-2011 and also published.
► 1 October: Laws 29788, 29789 and 29790 became in force.
Peruvian Mining Fiscal SystemPage 7
New Mineral Sector Fiscal System
• Operating Profit Margin Ratio =
Operating Income x 100
Mining Operating Revenue
Where:
• Mining Operating Revenue = revenues generated from the sale of mineral resources with certain adjustments (e.g. final settlement payment adjustments to account for final weights, final essays and final metal quotations).
• Operating Income = Mining Operating Revenue minus (i) cost of goods sold (“COGS”) and (ii) operating expenditures (including sales and administrative expenses) calculated under Peruvian GAAP, with the following exceptions:
• Exploration expenditures must be allocated on a pro-rata basis over the life of the mine.
• Interests are not deductible, regardless of whether they have been capitalized as part of COGS or treated as operating expenditures.
SYSTEM
BASE
RATES BASED ON OPERATING MARGIN
MINIMUN PAYMENTS
TREATMENT FORINCOME TAX PURPOSES
RoyaltiesSpecial Mining
Tax (SMT)Special Mining Burden (SMB)
WITHOUT TAX STABILIZATION (*)With Tax
Stabilization
Substitutes Current
Royalties New New
CONCEPT
1% to 12% 2% to 8.4% 4% to 13.12%
Operating Income
Deductible
(*) Tax Stabilization agreement under the Mining Law General
1% of sales N/A N/A
Peruvian Mining Fiscal SystemPage 8
Existing Progressive Royalty
Scale based on value of sales Marginal Rates
Not over US$ 60 million: 1%
Over US$ 60 but not over US$ 120 million 2%
Over US$ 120 million 3%
Modified Royalties – The higher of a) or b)
(1) Rate considers upper limit of the scale
Without Tax Stabilization Agreement: Royalty Regime
Operating income
MarginalRate
EffectiveRate (1)
Under 10 1,00% 1,00%
10 to 15 1,75% 1,25%
15 to 20 2,50% 1,56%
20 to 25 3,25% 1,90%
25 to 30 4,00% 2,25%
30 to 35 4,75% 2,61%
35 to 40 5,50% 2,97%
40 to 45 6,25% 3,33%
45 to 50 7,00% 3,70%
50 to 55 7,75% 4,07%
55 to 60 8,50% 4,44%
60 to 65 9,25% 4,81%
65 to 70 10,00% 5,18%
70 to 75 10,75% 5,55%
75 to 80 11,50% 5,92%
More than 80 12,00% 7,14%
a) Scale based on operating income
(b) Royalty of 1% of sales
Peruvian Mining Fiscal SystemPage 9
Without tax Stabilization Agreement: Special Mining Tax (SMT)
• The SMT will apply on operating profit derived from sales of metallic mineral resources, regardless of whether the mineral producer owns or leases the mining concession.
• The tax liability will arise and will be payable on a quarterly basis.
• It will be deductible for corporate income tax purposes.
• Not applicable to non-metallic mining.
• Small miners are exempt.
(1) Rate considers upper limit of the scale
Peruvian Mining Fiscal SystemPage 10
Fiscal Regime with Tax Stabilization Agreement: Special Mining Burden (SMB)
• It will apply to mines with Tax Stabilization Agreements entered into under the General Mining Law.
• “Voluntary” payments are to be made on a quarterly basis according to individual agreements to be entered with the Peruvian government.
• The SMB is not a tax as determined by general legal principles given that it is not a compulsory payment imposed under Peru´s authority to levy taxes.
• Mining and contractual royalty payments, if applicable, are creditable against SMB payments.
(1) Rate considers upper limit of the scale
Peruvian Mining Fiscal SystemPage 11
Effective Tax Rate (ETR)
30
35
40
45
50
55
60
10% 20% 30% 40% 50% 60% 70% 80% 90%
Old System (Royalties)
New Systems (SMT) Modified royalties
Operating margin (operating income / sales)
Withouth Tax Stabilization
ETR Based on Profitabilty% of before tax income:
Source: Apoyo Consultoría
1) Assumes 70% of income is distributed as dividends2) includes income tax, workers profit sharing, royalties SMT and W/T dividendds
35
37
39
41
43
45
10% 20% 30% 40% 50% 60% 70% 80% 90%
Old System
New Systems (SMB)
With Tax Stabilization
ETR Based on Profitability
% of before tax income:
1/ Assumes 70% of income is distributed as dividends2/ includes income tax, workers profit sharing, royalties SMB and W/T dividends
Source: Apoyo Consultoría
Operating margin (operating income / sales)
Peruvian Mining Fiscal SystemPage 12
Effect on Tax Revenues
Royalty SMT SMB Total
Existing Projects 50 322 536 908
New Projects 50 32 61 143
Total 100 354 597 1,051
Without considering the effect of their deduction for income tax purposes
Source: MEF
Estimated additional Tax Revenues per year(US$ million)
Peruvian Mining Fiscal System
MineSouthAmerica Focus on PeruMarcial García
Toronto,Wednesday 5, October,2011