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Tax solutions for mining

Tax Management Consulting

Challenges faced by mining companies:
The recent global economic crisis has resulted in state intervention all over the world and in numerous industries. Nowhere is this more evident than in the increased debate in state intervention in the South African mining sector.

The mining sector is eagerly awaiting the outcome of the African National Congress which is taking place in December 2012. It is expected that the outcome of this conference will result in the drafting of the new tax legislation and also amend the current legislation, to implement the policies adopted.

As the mining sector is still trying to get to grips with the calculation of the mining royalty that was introduced and came into effect in 2010, other forms of taxes are being discussed and might be introduced in the next two to three years. Some of these taxes include the Royalties and Rent Resources Tax (RRT).

With all these developments taking place mining houses are forced to keep abreast of the many changes in tax legislation regarding the mining industry as well as staying focused on the running of day to day business operations.

Tax compliance in general, has inevitably become a potential tax minefield.

How does the Deloitte solution address the business issue?
Deloitte mining tax specialists apply their specific expertise to corporate tax issues in the mining industry. Our main expertise lies in tax planning and the ability to assist with preparing or reviewing tax returns and year-end tax accruals.
In addition to the above, due to the complexities and murkiness surrounding the calculation of the mining royalty payable by mining houses, our mining tax specialists have:

  • Developed a highly skilled knowledge base regarding the interpretation of the controversial legislation around the mining royalty; and
  • formulated a means to assist with the calculation of the actual royalty payable.

Service Offerings:

  • Consulting;
  • Compliance;
  • Mining Royalty Calculations;
  • Restructuring, including advice on implementation and drafting of legal agreements;
  • Indirect Tax Advice;
  • International Tax Advice;
  • Tax strategy;
  • Tax technology and systems integration; and
  • Government Growth Initiatives.

Benefits to your organisation:
You will enjoy the distinct advantage of obtaining the very best advice from leading professionals in each area of tax who can all be found under one roof- from legal advisers to thought leaders who will strive to assist you to identify the optimal financial, practical and most tax effective mechanisms that will see your company not only prosper but flourish!

Suren Dharamlall
Tel: +27 (0)11 209 8569

Alex Gwala
Tel: +27 (0) 11 209 8232

Tax Efficient Supply Chain

Challenges mining companies face
One of the greatest opportunities to unlock value in the mining industry is to plan across the entire supply chain. Since the major markets for African commodities include Asia, the US and Europe, companies need to identify efficiencies beyond their own borders. This includes the careful management of risks across different jurisdictions.

How does the Deloitte solution address the business issue?
Business Model Optimisation (“BMO”) enables companies to obtain operating and tax efficiencies. This includes four steps:

Realign for business transformation
Operational changes are usually required to move the business model and the tax plan into harmony. Defining a new operating model to improve operating margins and grow revenues in a tax compliant manner can generate increased after-tax earnings and enhanced cash flows. Shifting components of the physical value chain to more tax-efficient jurisdictions is part of the solution, as is the strategic relocation of intellectual property.

Reconfigure Information Technology (IT) systems
As governance structures, supply chains, and other parts of an enterprise realign to capture more value, the information systems that support those functions must evolve as well. As a result, the IT systems should be reconfigured to support the new operating model. In addition, the IT function is itself a source of potential new efficiency through centralization, shared service centers, and economies of scale.

Readying human resources
BMO initiatives have human capital implications across the organization. After all, moving functions and risks means moving people, and that can trigger leadership challenges, potential disruption to the business, and loss of talent. These challenges, which can also create opportunities, need to be managed carefully with a command and control project management structure, strong communication plans, and dynamic change management.

Re-organise legal, finance, and tax structure
BMO goes beyond narrowly defined tax questions – but those questions remain at the heart of any worthwhile solution. A new legal structure and transaction flows often result from a BMO transformation as a means of managing tax and trade risks in the local countries as the legal entity structure aligns with the new operating model. Finance aspects, cash flows, and customs duties and other indirect tax implications of the new business model need to be considered within the new management and reporting structure.

Benefits to your organisation
The risks inherent in the mining industry present unique opportunities for companies to reduce their effective tax rate. This can be done by aligning the supply chain in a tax efficient manner. Furthermore, careful consideration of the business model can overcome additional economic and regulatory challenges, such as liquidity shortages and withholding taxes.

Louise Vosloo
Tel: +27 (0)11 806 5360

Transfer Pricing

Challenges Mining companies face
The mining industry poses some very specific challenges from a transfer pricing point of view. South African mining groups are often involved at more than one level in the supply chain. For example, the group may both mine and beneficiate the commodity in South Africa. This can make it very difficult to evaluate the profitability of the South African entity or entities.

In this scenario it is also necessary to determine the value on which the Mining Royalty will be paid. Companies would wish, as far as possible, to pay on the value of the commodity before any beneficiation.

The global footprint of many multinationals in the mining industry also presents challenges. It is necessary to consider the pricing of sales to group companies in multiple parts of the world. This is likely to mean that the pricing policies are very complex.

Meeting documentation requirements in multiple jurisdictions is also onerous.

A specific problem for ventures into Africa is the wide range of withholding taxes imposed by many African governments.

How does the Deloitte solution address the business issue?
The Deloitte transfer pricing team is part of a global team which has consistently had the highest number of individuals (including individuals from SA) rated in the Euromoney Guide to the World’s Leading Transfer Pricing Advisers. The SA team has extensive experience in preparing OECD compliant documentation which satisfies the requirements of SARS and is readily adaptable to the requirements of other countries.

We have extensive experience in the mining industry. Apart from substantial documentation projects, our assignments have included the following:

  • Benchmarking the sale to Europe of a valuable by-product from mining operations
  • Working together with colleagues in the UK and Canada to secure an advance pricing agreement (APA) between the authorities of those two countries
  • Advising on the SA transfer pricing implications of a significant restructuring of the supply chain of a commodity mined in SA.

Benefits to your organisation
The benefits of using the SA TP team are as follows:

  • A cutting edge SA practice with access to a world-wide range of specialists in the mining industry
  • A proven record of successful and constructive negotiations with SARS and with revenue authorities in other African countries (most recently, Botswana and Malawi)
  • Extensive experience in the mining industry

Billy Joubert
Tel: +27 (0)11 806 5352

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