## tassamsea

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---

### Executive summary — context and scope
- Higher public spending to meet development objectives in sub-Saharan Africa (SSA) requires boosting revenue mobilization.
- The paper examines mining (excluding oil and gas), the role of multinational enterprises (MNEs), profit shifting and tax avoidance in SSA mining, and policy reforms to boost revenue mobilization.
- Focus: mining sector and MNE-related tax avoidance.

### Importance of mining and MNEs in SSA — key facts
- Fifteen SSA economies are defined as “resource-intensive.”
- Mining sector contribution (last decade): about 10 percent to GDP on average across the 15 resource-intensive countries.
- Mining exports as share of total exports (resource-intensive countries): 50 percent on average.
- Mining as source of FDI inflows in region: about one-third of total inflows in 2017.
- Estimated value of regional mineral production in 2018 (excluding diamonds): about $350 billion.
- SSA countries estimated to possess 30 percent of global mineral reserves.
- Africa contributes more than 30 percent of global production of chromium, cobalt, manganese, platinum, gem diamonds and tantalum.
- For resource-intensive countries, more than 80 percent of entities making payments to governments are foreign-owned MNEs.

### Evidence on profit shifting and revenue losses
- New research indicates SSA countries lose between $470 million and $730 million per year in corporate income tax on average from MNE tax avoidance.
- Baseline estimate (including non–resource-intensive SSA economies with mining): revenue loss of about $600 million per year, based on tax rate differentials between African countries and offshore affiliates in the same MNE group.
- Upper-bound implication (using confidence intervals): maximum loss of $1.5 billion on average per year.
- Mining MNEs show higher sensitivity to host-country CIT differentials:
  - A 1 percentage point increase in host-country CIT reduces reported mining profits in that country by about 3.5 percent (firm-level analysis).
  - Literature semi-elasticity for other sectors: 1 percentage point tax differential → 1.5 percent reduction in reported pre-tax profits (Beer, De Mooij, and Liu 2019).
- Rules restricting profit shifting (for example, limits on interest deductions) can materially reduce profit shifting; new research shows interest limitation rules reduce sensitivity of MNE profits to tax rate differentials by half.

### Drivers and channels of reduced mining revenue
- Two main forces reducing revenue from MNEs:
  - Countries lowering tax burdens to attract inbound investment, fueling unhealthy regional tax competition.
  - International profit shifting by MNEs, including routing investment via third-country “hubs” and use of light-taxed conduit entities.
- Inbound investment patterns:
  - Nearly 45 percent of FDI flows into SSA mining come via investment hubs.
  - Hubs defined by OECD standard: FDI exceeding 150 percent of GDP.
  - Example: Mauritius FDI to GDP ratio about 2,000 percent; top-5 inbound source for seven of the 15 resource-intensive economies.
- Transfer pricing and related-party channels:
  - Related-party loans, sales, services, procurement, and marketing fees commonly used to shift profits.
  - Case examples:
    - Sierra Leone: related-party loans claimed interest premium of 16 percent above LIBOR; local company expected not to pay income tax for years (no limitations at time).
    - Mali: interest-rate cap reduced rate but MNE increased loan quantity to preserve deductions.
    - Zambia: Mopani copper mine ordered to pay an additional $13 million in tax in 2020.
    - South Africa: recovered about $185 million in tax from over-remuneration of an offshore marketing hub in Luxembourg.
  - Table worked example (EUR basis) illustrating debt push-down effect:
    - Low-Debt Scenario: Equity EUR900; Debt EUR100; Debt/equity 0.11%; Interest rate/year 0.08%; Deductible interest/year EUR8; CIT rate 0.3; CIT value of profit shifting EUR2.4.
    - High-Debt Scenario: Equity EUR100; Debt EUR900; Debt/equity 9.00%; Interest rate/year 0.08%; Deductible interest/year EUR87; CIT rate 0.3; CIT value of profit shifting EUR21.6.
    - Difference (High minus Low) in CIT value of profit shifting: EUR19.2.
- Mispricing and marketing hubs:
  - Under-quoted prices, reference-price manipulation, excessive commissions/fees and unreported by-product minerals can transfer profits offshore (example: adjustments and fees reduced shipment value by more than 10 percent in one case, transferring about $500 million offshore over several years).
- Subcontracting and ring-fencing avoidance:
  - Structuring domestic operations to pay local subcontractors (service fees) can shift profits outside the mining fiscal regime into general company tax regimes.
- Offshore indirect transfers and taxing capital gains:
  - 13 of the 15 resource-intensive economies tax capital gains; only Namibia and Zambia do not tax these gains in some way.
  - Offshore indirect transfers are difficult to detect and assert taxing rights over.

### Fiscal regime structure and vulnerabilities
- Typical SSA mining fiscal regime combines royalties, corporate income tax (CIT), and often state non-controlling ownership stakes yielding dividends.
- Alternative minimum taxes (AMTs) frequently used to ensure some corporate tax is paid.
- Taxes explicitly targeting economic rents used much less frequently.
- Most resource-intensive countries use contracts to define fiscal terms; contracts often “stabilize” fiscal terms and override domestic legislation, limiting changes over time.
- Royalties contribute over 25 percent of total payments in all EITI-reporting countries except Liberia and Mali (around 15 percent).
- Corporate taxes represented over 15 percent of total payments in most countries; exceptions: Liberia and Sierra Leone (both below 5 percent; data affected by Ebola).
- Taxes on goods and trade (excises, customs duties, export taxes) contributed over 15 percent of total payments in Burkina Faso, Guinea, Mali, and Zambia.

### Quantifying regional revenue loss (simulation details)
- Simulation methodology:
  - Baseloss_i = ε_i dτ_i where ε_i is semi-elasticity and dτ_i is tax rate differential.
  - Regional estimate is weighted average of country-specific estimates using relative country tax base sizes.
- Average tax rate differentials in SSA range between –13 and 17 percent, with an average of 4 percent.
- Using average tax rate differential of about 4 percent, estimated regional revenue loss ≈ $600 million per year.
- Uncertainty bounds (Annex Table 3.2, mn USD):
  - Baseline-Baseline: 600
  - Baseline-Upper Bound: 1,230
  - Upper Bound-Baseline: 732
  - Upper Bound-Upper Bound: 1,527
- Two main sources of uncertainty:
  - Semi-elasticity estimate (WP average 3.5, standard error 0.6; 90 percent confidence band: 2.5 to 4.5).
  - Measurement error in true tax rate differential (standard deviation of foreign tax rates 0.06).

### Policy recommendations to reduce profit shifting and boost revenue
- Strengthen and simplify transfer pricing protections:
  - Establish pricing guidelines for all mineral sales to related parties.
  - Impose limits on tax deductions for marketing and logistics.
  - Place onus on taxpayers to substantiate intra-group transactions and costs.
- Limit interest deductions:
  - Set annual limits on interest deductions for CIT (thin-cap or EBITDA-style limits).
  - Define “interest” broadly to include economically similar payments and loan fees.
  - Offer carry-forward of excess deductions as grandfathering where appropriate.
- Improve tax treaty practices:
  - Limit treaty shopping via adoption of the MLI or bilaterally adopting BEPS protections.
  - Maintain non-zero withholding taxes on royalties, interest, services, and management fees.
  - Expand treaty definition of “immovable property” to cover indirect transfers; use PCT Toolkit model approaches for offshore indirect transfer taxation.
- Limit tax incentives and stabilize negotiation practices:
  - Confine tax incentives to efficient options (accelerated depreciation, limited customs/VAT exemptions), remove tax holidays.
  - Apply time limits (“sunset”) and consider regional coordination to limit tax competition.
  - Strengthen negotiation capacity; include tax officials in negotiation teams; limit mine-by-mine fiscal negotiations and scope of stabilization clauses.
- Strengthen taxation of capital gains and offshore indirect transfers:
  - Impose reporting requirements on local entities for offshore ownership changes.
  - Impose CGT liability on local entities for offshore transfers or adopt PCT Toolkit Model 1 or Model 2 approaches.
- Adopt cash flow taxes (rent-capture instruments) where appropriate:
  - Cash flow taxes that exclude interest deductions can close off debt-based profit-shifting channels.
  - Cash flow taxes increase revenue volatility but can better capture windfalls in price upswings.
- Link domestic reforms to regional and international actions:
  - Coordinate reforms regionally and engage with international corporate tax reforms (including “Pillar 2”) to limit tax competition and under-taxation.

### Progress and recent reforms in SSA (selected examples)
- Sierra Leone: Extractive Industries Revenue Act (EIRA) 2018 — moved away from mine-by-mine fiscal negotiations; introduced resource rent tax (RRT) with rate referenced to general CIT rate.
- Guinea: 2019 legal framework strengthened to support the arm’s length principle (with IMF assistance).
- Liberia, Mali: strengthened transfer pricing protections/documentation requirements.
- South Africa: limit on interest deductions using a maximum allowable interest rate calculation.
- Nigeria: limitation on interest deductions in 2020 Finance Act calculated in line with BEPS Action 4 as a percentage of EBITDA.
- Kenya: introduced a limitation of benefits article into tax treaty policy.
- Burkina Faso: MLI came into force in February 2021; Burkina Faso, Cameroon, Côte d’Ivoire, Gabon, Mauritius, Nigeria, Senegal, and South Africa have signed the MLI (South Africa had yet to ratify at source publication).

### Implementation considerations and capacity needs
- No single cause of disappointing mining revenue performance; no silver bullet to raise substantial revenue quickly.
- Improving tax policy and tackling tax avoidance require careful preparation, stronger capacity, time, resources, and political commitment.
- Multiple agencies (Ministry of Mines, customs, government labs, judiciary, Parliament, tax departments) must be resourced and coordinated.
- Authorities need access to international information networks and technical expertise (purchase data, market analysts) to enforce transfer pricing and detect avoidance.
- Transition options to address investor concerns:
  - Allow opt-in to new rules, provide transition periods for restructuring (for example, rewriting loan agreements), or renegotiate critical fiscal terms.

### IMF support and tools
- Core IMF engagement: surveillance, lending, capacity development, and addressing international spillovers.
- Diagnostic and analytical tools: Tax Administration Diagnostic Assessment Tool (TADAT), Fiscal Analysis for Resource Industries (FARI).
- Managing Natural Resource Wealth Thematic Fund (MNRW-TF):
  - Supports capacity building; nearly 20 SSA countries have benefitted since 2011.
  - Outputs: flagship publications on fiscal regimes, a handbook on revenue administration of extractives, public release of IMF’s FARI model.
- International taxation mainstreaming undertaken in Article IV consultations since 2016 in 25 countries worldwide, including four SSA countries—Kenya, Mali, Tanzania, and Uganda.

### Practical action checklist (Annex Table 6.1 — selected actions)
- Action 1: Interest Deductions
  - Set annual limits on interest deductions; allow carry-forward; define interest broadly; require commercial justification for lending.
- Action 2: Lock in Source Taxing Rights
  - Amend domestic permanent establishment definition to include services related to mines; ensure domestic law taxes capital gains.
- Action 3: Combat Abusive Transfer Pricing
  - Establish mineral-specific pricing guidelines; limit deductions for marketing/logistics; require substantiation for payments to related parties in low-tax jurisdictions.
- Action 4: Strengthen Double Tax Treaties
  - Adopt MLI or bilateral protections; maintain withholding taxes; expand “immovable property” definition.
- Action 5: Limit the Use of Incentives
  - Remove tax holidays; confine incentives to efficient options; impose sunset provisions; adopt regional coordination.
- Action 6: Offshore Indirect Transfers (for countries taxing capital gains)
  - Impose reporting requirements on local entities; adopt PCT Toolkit Model 1 or Model 2 approaches to tax offshore indirect transfers.
- Action 7: Investor Negotiations
  - Limit stabilization scope/time; include tax officials; use external expertise where local capacity is low.

*Source: Executive Summary and excerpts from “TAX AVOIDANCE IN SUB-SAHARAN AFRICA’S MINING SECTOR” (IMF).*

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### Executive Summary

### Context and scope
- Higher public spending to meet the development objectives of sub-Saharan Africa (SSA) requires boosting revenue mobilization.
- This paper examines mining, the role of multinational enterprises (MNEs), profit shifting and tax avoidance in SSA mining, and policy reforms to boost revenue mobilization.
- The analysis focuses on mining and excludes oil and gas production.

### Importance of mining and MNEs in SSA
- Fifteen SSA economies are defined as “resource-intensive.”
- Over the last decade, the mining sector contributed about 10 percent to GDP on average across the 15 SSA countries considered resource-intensive.
- In most SSA resource-intensive countries, mining exports represent 50 percent of total exports on average.
- The mining sector is the main source of foreign direct investment (FDI) inflows in the region, representing about one-third of total inflows in 2017.
- The region produced minerals with an estimated worth of about $350 billion in 2018 (data exclude diamonds).
- SSA countries are estimated to possess 30 percent of global mineral reserves.
- Africa contributes more than 30 percent of global production of chromium, cobalt, manganese, platinum, gem diamonds and tantalum.
- For resource-intensive countries in the region, more than 80 percent of all entities making payments to governments are foreign-owned MNEs.

### Evidence on profit shifting and revenue losses
- New research indicates SSA countries are losing between $470 million and $730 million per year in corporate income tax on average from MNE tax avoidance.
- The baseline estimate— which also includes SSA economies with mining but not defined as resource intensive—suggests a revenue loss of about $600 million, based on tax rate differentials between African countries and offshore affiliates in the same MNE group.
- These estimated effects are larger than what has been found for other sectors.
- The analysis finds that rules to restrict profit shifting (for example, through limitations on interest deductions against corporate income taxes) can significantly reduce the extent of profit shifting.

### Drivers and channels of reduced mining revenue
- Two main forces have reduced revenue from MNEs:
  - Countries lowering tax burdens to attract inbound investment, stoking unhealthy regional tax competition.
  - International profit shifting by MNEs, including through investment routed via third-country “hubs” and the use of light-taxed conduit entities.
- Nearly half of FDI inflows into SSA mining come via third country investment “hubs” (countries with very high FDI to GDP ratios), which combined with light taxation of conduit entities can be conducive to profit shifting.

### Policy recommendations to reduce profit shifting and boost revenue
- Strengthen and simplify transfer pricing protections.
- Limit interest deductions.
- Improve tax treaty practices (including limiting treaty benefits where appropriate).
- Limit tax incentives.
- Strengthen investment negotiation practices and reduce mine-by-mine negotiation of fiscal terms.
- For countries imposing capital gains tax on indirect transfers occurring offshore, strengthen protections as highlighted by work in the Platform for Collaboration on Tax.
- Link tax policy changes to similar policy actions elsewhere to strengthen the benefits of regional coordination.
- Engage closely with international efforts to reform corporate income taxation, given potential implications for taxing mining MNE profits.

### Progress and recent reforms in SSA
- Sierra Leone’s new fiscal regime moved the country away from negotiating fiscal terms mine by mine.
- Guinea, Liberia, and Mali have strengthened transfer pricing protections.
- South Africa and Nigeria have set limits on interest deductions.
- Nine of the 15 resource-intensive economies have alternative minimum taxes that can ensure some corporate taxes are paid each year.
- Kenya introduced a limitation of benefits article into its tax treaty policy.

### Implementation considerations
- There is no single cause of disappointing mining revenue performance, and no silver bullet to raise substantial revenue quickly.
- Improving tax policy and tackling tax avoidance require careful preparation and stronger capacity, which take time, resources, and political commitment.
- Tightening controls against international profit shifting could be a key component to mobilize domestic resources and support fiscal recovery after the COVID-19 emergency.

*Source: Executive Summary of “TAX AVOIDANCE IN SUB-SAHARAN AFRICA’S MINING SECTOR”*

### 1. EITI Revenue—Payments by MNEs

### 1. EITI Revenue—Payments by MNEs

### EITI-reported Payments and Composition
- Mining companies in EITI-participating SSA countries make a wide range of payments, including royalties, state participation dividends, corporate income tax (CIT), trade taxes (excises, customs/import duties, export taxes), license fees, and other government receipts.
- Royalties contribute over 25 percent of total payments in all countries except Liberia and Mali (around 15 percent).
- Corporate taxes represent over 15 percent of total payments in most countries; the exceptions are Liberia and Sierra Leone, which were both below 5 percent (data for both affected by the Ebola pandemic that began in 2014). Guinea was also affected by the pandemic, but CIT remained more than 15 percent of total payments.
- Taxes on mining company goods and trade (excises, customs duties, and export taxes) contribute materially in some countries:
  - In Burkina Faso, Guinea, Mali, and Zambia these represent over 15 percent of total payments.
  - In Ghana, Niger, Liberia, Sierra Leone, and Tanzania these payments were less than 15 percent.
- The composition of remaining payments varies by country:
  - Ghana received around 38 percent of payments from state participation dividends.
  - Sierra Leone received around 18 percent of payments from license fees.

### Scale of Mining Investment Relative to Public Expenditure (Guinea case)
- A recent mine in Guinea is highlighted to indicate the scale of investment relative to government expenditure categories. (Source figures and labels in the original exhibit compare bauxite investment and various public expenditure items, with percentage-of-GDP metrics.)

### Contributions of Mining Resources to SSA Economies (Averages)
- For the 15 resource-intensive economies of the region, revenue from mining accounts for 2 percent of GDP, on average.
- Most resource-intensive economies remain in the range of 1–3 percent of GDP, on average.
- Botswana is an outlier, consistently recording mining revenues at over 12 percent of GDP.
- Beyond Botswana, only Guinea and Zambia have mining revenues that contribute over 15 percent of total revenues.
- For the remaining ten economies, mining contribution to total revenues is much lower: nine economies are under 10 percent of total revenue.

### Fiscal Regime Settings for Mining Investors
- Most SSA countries operate a mining fiscal regime that combines royalties, corporate income tax, and, for many, state non-controlling ownership stakes that yield dividends.
- Alternative minimum taxes (AMTs) are frequently used to buttress company tax when tax payments would otherwise fall below some minimum level.
- Taxes targeted at economic rents are used much less frequently.
- Almost all resource-intensive countries in SSA use contracts to define fiscal terms for particular projects; these contracts override domestic revenue legislation and often “stabilize” fiscal terms over time.

### Revenue Patterns, Concerns, and International Profit Shifting
- There are concerns that prevailing revenue levels do not represent a “fair” sharing of mining benefits in the region; international profit shifting by MNEs is a central concern in this debate.
- Evidence cited on disconnects between mineral value and government revenue growth:
  - Mansour (2014) observed that tax revenue from natural resources in SSA increased by about 1.4 times between 1985 and 2010 while world mineral prices increased by a factor 2.3 on average.
  - de Quatrebarbes and Laporte (2015) estimated that the value of regional mineral production increased by 4.6 times during 2000–10, while government revenues from nonrenewable resources only increased by a factor of 1.2.
- Policy-relevant implications include that dividend-yielding state participation (for example, Botswana’s 50-50 joint venture arrangements with De Beers and a negotiated 15 percent stake in De Beers) can generate dividend revenue and potentially limit international profit shifting through managerial influence in joint ventures.

*Source: IMF.*

### 1. Mining Revenue as Percentage of GDP (Average 2010–16)2. Mining Revenue as Percentage of Total Revenue (Average 2010–1

### tassamsea - 1. Mining Revenue as Percentage of GDP (Average 2010–16)2. Mining Revenue as Percentage of Total Revenue (Average 2010–1

### Fiscal Regime Structure
- SSA fiscal regimes for mining emphasize mineral royalties, company taxes, and state participation.
- Fiscal instruments differ in revenue potential, responsiveness to production/value changes, and ability to capture economic rents:
  - Corporate income tax (CIT) and resource rent taxes capture more “upside” than royalties.
  - Royalties aim for greater revenue stability over time—even in times of lower mineral prices.
- Lags can exist between commodity price increases and realized government CIT receipts due to company financial positions and use of prior-year losses.
- The primacy of royalties and lesser role for cash-flow taxes on economic rents limit fiscal regime responsiveness to price/production changes.
- Fiscal instruments have distinct vulnerabilities to avoidance and profit shifting, potentially reducing revenue from profit-based instruments such as CIT and state participation dividends.

### Corporate Taxation and the Pressures of Tax Competition
- Tax competition for inbound investment often takes the form of CIT rate reductions and/or tax holidays in legislation, investment promotion laws, mining codes, or investor agreements.
- Among 15 resource-intensive economies (data as at 2020):
  - Only three countries had lower CIT rates for mining in legislation, six had higher rates, and six applied the same rate across sectors.
  - Three countries have investment promotion and/or SEZ provisions that include CIT rate incentives for mining explicitly; an additional four have investment promotion laws that switch off alternative minimum taxes.
  - At least nine countries have reduced CIT tax rate as a tax incentive in at least one resource contract; five countries do not publish their resource contracts.
- Ad hoc and reduced taxation in mining contracts are direct financial transfers to investors and impede revenue mobilization—often not decisive for investment occurrence.
- Combined effects of CIT system features (for example, accelerated depreciation) yield implicit CIT rates notably below statutory CIT rates (see Figure 6 reference in source).

### International Profit Shifting and Macro Evidence
- International profit shifting allocates deductions to higher-tax countries and income to lower-tax countries (e.g., related-party interest-bearing loans).
- A literature estimate: a 1 percentage point larger tax rate differential reduces reported pre-tax profits in the higher-taxed affiliate by 1.5 percent (semi-elasticity) (Beer, De Mooij, and Liu 2019).
- Developing countries are disproportionately affected by profit shifting; one study estimated revenue loss at 1 percent of GDP for OECD economies and 1.3 percent of GDP for developing countries globally (Crivelli, De Mooij, and Keen 2016).
- Mining MNEs tend to be more prone to profit shifting due to:
  - Greater complexity across sectors.
  - Higher ratio of intangible assets to total assets.
- New firm-level analysis combining CBC reports, EITI, IMF resource revenue data, and financials from >600 MNE groups finds:
  - A 1 percentage point increase in host-country CIT reduces reported mining profits in that country by about 3.5 percent—over double the elasticity for all sectors.
  - Mining MNEs may be more sensitive to tax rate differentials than petroleum MNEs.

### Quantifying Revenue Losses from Profit Shifting
- Baseline estimate of CIT revenue loss to African countries from mining MNE tax avoidance:
  - $450–730 million per year on average.
  - Central baseline figure: $600 million per year.
  - Using confidence intervals for elasticity and tax rate differentials, the upper bound implies a maximum loss of $1.5 billion on average per year.
- Primary uncertainties: the semi-elasticity estimate and the true tax rate differential for each MNE.
- Evidence indicates that rules restricting profit shifting can materially reduce profit shifting.

### Inbound Investment Patterns, Investment Hubs, and Treaty Shopping
- Inbound investment is often channeled via third-country “investment hubs” with high FDI relative to GDP; OECD definition adopted: hubs have FDI exceeding 150 percent of GDP.
- Conduit countries achieve light taxation through territorial tax systems, low profit taxes, no taxes on transfers/capital gains, and extensive tax treaty networks with low withholding taxes.
- Nearly 45 percent of FDI flows into SSA mining come via investment hubs (African Business Review 2017).
- Mauritius example:
  - FDI to GDP ratio of about 2,000 percent.
  - Top-5 inbound investment source for seven of the 15 resource-intensive economies.
- Tax treaty withholding tax reductions weaken withholding taxes as a backstop and incentivize treaty shopping:
  - Withholding tax reductions with conduit countries increase profit shifting risk unless local tax base protection measures exist.
- On average, the 15 resource-intensive economies have treaties with two of their top-5 inbound investment sources.
- Some countries have unilaterally reduced dividend withholding taxes to zero for mining companies (Botswana, Central African Republic, Democratic Republic of the Congo, Zambia); Guinea has overridden domestic withholding taxes in resource contracts.
- Only South Africa and Burkina Faso among resource-rich SSA countries have used OECD/G20 BEPS tools (MLI) to limit treaty shopping; Burkina Faso’s MLI came into force in February 2021; South Africa had yet to ratify at source publication.

### Transfer Pricing, Related-Party Transactions, and Abusive Financial Structures
- Related-party transactions span sales of mine production, services provision, procurement, and intra-group financing and can be used to shift profits via non-arm’s-length pricing.
- Transfer pricing enforcement is capacity-intensive and often constrained by:
  - Difficulty finding comparables for specialized mining inputs.
  - Limited regional coverage in pricing databases.
  - Limited data and personnel in tax authorities.
- Related-party loans are a major profit-shifting channel:
  - Overstated interest rates or high leverage create deductible interest that reduces local taxable profits.
  - Example cases from SSA:
    - Sierra Leone: interest rate premium of 16 percent above LIBOR claimed on related-party loans, resulting in expectation that the local mining company would not pay income tax for years (no limitations at time).
    - Mali: interest-rate cap closed off one arrangement; MNE adapted by reducing interest rates but increasing loan quantity, preserving tax deductions.
- Table 4 worked example (EUR basis):
  - Low-Debt Scenario: Equity EUR900; Debt EUR100; Debt/equity 0.11%; Interest rate/year 0.08%; Deductible interest/year EUR8; CIT rate 0.3; CIT value of profit shifting EUR2.4.
  - High-Debt Scenario: Equity EUR100; Debt EUR900; Debt/equity 9.00%; Interest rate/year 0.08%; Deductible interest/year EUR87; CIT rate 0.3; CIT value of profit shifting EUR21.6.
  - Resulting CIT value of profit shifting difference: EUR19.2 (High minus Low).
- Non-controlling state equity stakes are vulnerable: MNEs may lend to local subsidiaries to absorb local profits before dividends, lowering dividend withholding tax revenue; smaller passive stakes are more exposed.

*Italic: Source — IMF PDF "tassamsea - 1. Mining Revenue as Percentage of GDP (Average 2010–16)2. Mining Revenue as Percentage of Total Revenue (Average 2010–1" (excerpts provided).*

### 1. Profit Shifting Via High Interest Rate2. Profit Shifting Via High Loan Amounts

### 1. Profit Shifting Via High Interest Rate2. Profit Shifting Via High Loan Amounts

### A. Profit shifting via intra-group debt (high interest rates and loan amounts)
- Example structure:
  - Group Treasury → Mine Co (lends to Mine Co–LIBOR + 16%).
  - Mine Co borrows from capital markets–small margin above LIBOR.
  - Use of limits and high internal interest rates can be used to stream profits to preferred shareholders.
- Country example and impact:
  - In Ghana one MNE parent advanced all funds for project development to the local subsidiary as interest-bearing debt and decided no dividends would be paid until the debt had been repaid, eliminating dividend revenue and dividend withholding tax.
  - Even with interest limitation rules denying some interest deductions for CIT, characterizing cashflows as interest rather than dividends can still be preferable for the MNE.
- Policy design implication:
  - Cash flow taxes targeting economic rents often exclude deductions related to interest, making them less vulnerable to this channel.
  - Cash flow taxes often allow the immediate expensing of capital spending in the year they occur, rather than depreciation allowances; by doing so, this removes the justification for deductions for interest expenses and "all but closes off a significant profit shifting channel."

### B. Under-pricing minerals and remuneration of marketing hubs
- Mechanisms of mispricing:
  - Under-quoted prices, mis-specified reference prices, excessive penalty adjustments for grade, commissions and handling fees, or not declaring income from by-product minerals.
- Country cases and figures:
  - Zambia’s Mopani copper mine ordered to pay an additional $13 million in tax in 2020.
  - In one country example, adjustments and fees reduced the value of shipments by more than 10 percent, transferring about $500 million in profits offshore over several years.
  - South Africa recovered about $185 million in tax to settle over-remuneration of an offshore iron ore marketing hub in Luxembourg.
- Typical profit-shifting practice:
  - Mining exports sold first to affiliates in low-tax countries, which then on-sell to final customers; use of substantial service, marketing, or management fees to offshore affiliates as a simple profit-shifting mechanism.
- Implications for different fiscal instruments:
  - Fiscal instruments based on the value of mineral product sales (mineral royalties, CIT, resource rent taxes) face mispricing risks.
  - Some royalties are less exposed: those calculated on a “gross” basis excluding costs such as sales fees reduce vulnerabilities; royalties based on the value of contained mineral (e.g., percentage of gold multiplied by an international reference price such as the LBMA gold price) simplify calculations and remove avenues for mispricing.
- Illustrative schematic (Figure 9 described):
  - Reference price per tonne → Price adjusted for grade of ore → Marketing fee, “other” fees → Price used to calculate CIT.

### C. Use of subcontractors to move profits outside the mining fiscal regime
- Technique:
  - MNEs structure domestic mining into two or more entities, creating a subcontractor in the producing country contracted to undertake all mining and paid a service fee.
- Objective and incentive:
  - Move profits outside the mining fiscal regime into general company tax law, especially where the tax rate faced by the mineral license holder is higher than the generally-applied company tax rate—tax rate differentials create incentives to book profits outside the project’s “ring fence.”
- Taxation challenges:
  - Potential issues with taxing payments to subcontractors that are unrelated to the MNE for work done in the producing country.

### D. Offshore indirect transfers of interests and taxing capital gains
- Nature of gains:
  - Capital gains from projects can be substantial when discoveries occur or project economics improve; new information can cause rapid changes in asset values (example: Global Atomic Corporation announced uranium oxides in Niger and its share price jumped by 43 percent).
- Transaction frequencies (S&P Global snapshot):
  - Of the 33 transactions done in the first quarter of 2018 valued above $5 million: 17 targeted gold, 8 copper, 2 diamonds, 2 cobalt, and 1 each silver, palladium, nickel, and zinc.
- Tax policy landscape:
  - 13 of the 15 resource-intensive economies in SSA tax capital gains; only Namibia and Zambia do not tax these gains in some way.
- Challenges for source countries:
  - Identifying transactions: offshore transactions can be difficult to detect, undertaken through complex legal structures, and investors may not report them timely.
  - Asserting taxing rights: offshore construction of transactions raises disputes over whether a source country has the authority to tax those gains under domestic law and tax treaties.

### E. Tax incentives, stabilization clauses, and negotiation risks
- Prevalence and risk:
  - Tax incentives and negotiated fiscal terms are common and pose high revenue risk when negotiated project-by-project, particularly with stabilization clauses.
- Country cases and quantified impacts:
  - Guinea-Bissau: an investor proposed tax/royalty reductions that would cost about $400 million in revenue over the mine’s life, including zero CIT for an initial period, half-rate CIT thereafter; no limitations on interest; no VAT or customs duties; no dividend or interest withholding taxes; no capital gains tax; a reduced royalty rate; CIT accelerated depreciation; and stabilized fiscal terms.
  - Mozambique: one MNE shifted profits from a taxed mining business to a tax-exempt entity in an export processing zone via a loan arrangement, with an estimated tax cost of EUR 20 million per year.
  - Guinea design flaw: CIT holidays not tied to a particular project or license allowed restructuring to restart tax holidays for another 5 years, potentially shielding projects from CIT indefinitely.
- Stabilization clause effects:
  - Stabilization clauses reduce the range of possible tax outcomes over a project’s life, making it difficult to legislate base protection measures and lengthening transitions to new fiscal regimes—in Sierra Leone authorities may need to wait another 10–15 years until existing investors are subject to the recently enacted fiscal regime for mining (unless renegotiation occurs).

*Source: IMF.*

### 1. Export Processing Zones and Domestic Profit Shifting2. Design Flaws in Incentive Policy

### 1. Export Processing Zones and Domestic Profit Shifting2. Design Flaws in Incentive Policy

### Corporate tax vulnerabilities in mining
- Corporate income taxation has clear profit-shifting vulnerabilities that are elevated in mining relative to many other sectors.
- Vulnerabilities are highlighted by the G20/OECD BEPS process and IMF technical assistance experience in African countries.
- Transfer pricing (including via loans) is a clear area of vulnerability.
- Vulnerabilities are exacerbated by capacity gaps in tax administration and across government (including in policy formulation and inter-agency coordination), leading to underperformance of corporate taxes in most African countries (Annex 5).
- Many countries set corporate tax rates in the mining sector below generally applicable rates and generally lack resource rent taxes.

### Potential impact of international tax reform
- Wider international corporate tax reform, including a global minimum effective corporate tax (“Pillar 2”), could provide producing countries a mechanism to ensure some corporate tax is paid by mining MNEs.
- Possible consequences:
  - Could lessen pressures for corporate tax competition and tax holidays.
  - Producing countries that do not impose corporate taxes on mining MNEs may risk other jurisdictions taxing under-taxed profits.
  - Could diminish tax advantage of existing incentives, prompting a rush to stabilize fiscal terms.
  - Risk that tax competition moves to other fiscal instruments or direct subsidies.
- Other elements (Pillar 1) consciously exclude natural resources and maintain that location-specific rents should be taxable where they arise.

### Key policy steps to address vulnerabilities
- Interest limitation rules:
  - New research (Beer and Devlin 2021; Chapter 3) shows interest limitation rules reduce sensitivity of MNE profits to tax rate differentials by half.
  - Interest limitation rules for mining MNEs should be an immediate policy priority for SSA countries without such protections.
- Transfer pricing implementation:
  - Effective application of transfer pricing rules is essential; implementation is the key factor.
  - Applying the arm’s length standard requires political will and investments in staff training, data gathering, and information exchange.
  - Strong tax department capacity is essential; alternatively, simplified approaches may be preferable.

### Investment policy and incentives (priority measures)
- Tax Incentives:
  - Tighten the use of fiscal incentives, including a “standstill” on new tax rate incentives (including zero rates), preferably in cooperation with neighboring countries.
  - Review existing provisions; confine any new tax incentives to most efficient options, such as accelerated depreciation (if offered at all).
  - Ensure proposed incentives receive appropriate scrutiny of their revenue cost.
- Investment Negotiations:
  - Limit scope of stabilization provisions for investors to key terms (for example, corporate tax rate).
  - Ensure tax officials participate; bolster negotiating teams with external expertise where local capacity is low.
  - Remove authority of investment promotion authorities to negotiate agreements without senior Ministerial consideration of fiscal impact and risks.

### Tax base protections
- Locking in core taxing rights:
  - Legislation should affirm the right of the producing (source) country to tax mining activity.
  - Strong definition of “permanent establishment” should include fixed physical presence and services provided in connection with the mine.
  - Clear policy intention to tax gains on sale of mines, whether domestic or offshore.
- Transfer Pricing Protections:
  - Establish legislation and protections against abusive transfer pricing, placing onus on taxpayers to substantiate intra-group transactions.
  - Adopt pricing guidelines for mineral sales to related parties.
  - Impose yearly limits on tax deductions for marketing and logistics.

### Treaty policy
- Double Tax Treaties:
  - Limit treaty shopping by adopting treaty shopping protections bilaterally or via the MLI.
  - Maintain withholding taxes on royalties, interest, and management/service fees.
  - Expand treaty definition of “immovable property” in accordance with the PCT Toolkit.

### Additional actions on capital gains and offshore transfers
- Strengthen taxation on indirect transfers of interests in mines:
  - Update tax treaties to ensure capital gains taxation can be imposed on offshore transfer of “immovable” assets (currently in Article 13(4)).
  - Support treaty protection with domestic legislation defining immovable assets to include indirect transfers; include mining titles where needed.
  - Adopt one of two “model” approaches from the PCT Toolkit:
    - Model 1: Treat an offshore indirect transfer as if it was a transfer of the underlying asset(s) (“deeming”).
    - Model 2: Treat gains from offshore sale as domestically sourced income, with tax imposed on the actual seller abroad.
  - Toolkit also provides guidance on improving compliance, detection, enforcement, and tax collection.

### Fiscal regime design: cash flow taxes and rent capture
- Greater use of cash flow taxes targeting economic rents can improve fiscal regimes and help countries participate in commodity price upswings.
- Example: A simplified cash flow tax on a mining project that excludes interest deductions could be implemented, tailored to local capacity (Baunsgaard and Devlin 2021).
- Cash flow taxes increase budget revenue volatility but can make fiscal regime more attractive to investors when combined with reduced role for royalties.

### Implementing changes and transition options
- Transition challenges: investors with up-front investments may seek special treatment or stabilized fiscal terms if made worse off.
- Options to address investor concerns:
  - Allow taxpayers to continue under existing arrangements and “opt in” to new rules when they wish.
  - Provide a transition period to allow restructuring (for example, rewrite loan agreements) before new rules apply.
  - Consider renegotiation for especially relevant fiscal terms in mining contracts.
- Linking reforms to international developments and regional actions can provide political cover and make implementation more feasible.

### Recent reforms and country examples in SSA
- Sierra Leone:
  - Implemented Extractive Industries Revenue Act (EIRA) in 2018, moving away from negotiating fiscal terms mine by mine.
  - EIRA introduces a resource rent tax (RRT) with rate calculated with reference to the general CIT rate; RRT rate adjusts automatically.
- Liberia:
  - Strengthened transfer pricing rules and documentation requirements to emphasize identification and comparability of related-party transactions.
- Guinea:
  - Strengthened legal framework in 2019 to support the arm’s length principle with IMF technical assistance; aimed at mobilizing additional tax revenues under an IMF-supported Extended Credit Facility.
- South Africa:
  - Implemented a limitation on interest deductions using a maximum allowable interest rate calculation; provisions adjust automatically to interest rate changes.
- Kenya and other countries:
  - Kenya introduced a limitation of benefits article into tax treaty policy.
  - Burkina Faso, Cameroon, Côte d’Ivoire, Gabon, Mauritius, Nigeria, Senegal, and South Africa have signed the MLI.
- Nigeria:
  - Implemented a limitation on interest deductions in the 2020 Finance Act calculated in line with BEPS Action 4 as a percentage of EBITDA.
- Mali:
  - Enacted transfer pricing regulations in 2016–17 introducing documentation requirements based on OECD Master file/Local file approach plus a simplified declaration.
  - Regulations do not apply to intercompany transactions within Mali, posing risks given preferential regimes for direct and indirect taxes.

### Annex highlights: fiscal regime summary and EITI payments data
- Annex Table 1.1 summarizes fiscal regimes for mining across SSA countries, including:
  - Royalty rates and bases, Resource rent tax (RRT) types and rates, Corporate income tax (mining) tax rates, interest limitation types, state participation percentages.
  - Examples from table (verbatim values preserved): Botswana: Royalty 3–10, RRT Variable income tax 22–70, Tax rate 22; Burkina Faso: Royalty Price-based, Corporate income tax 27.5, EBITDA (15%), Rate cap; Sierra Leone: Royalty 3–8, RRT Rate of return Variable, Tax rate 25, Thin cap (3:1), State participation 15 (F), and others as listed.
- EITI payments data (2014–15 reports for EITI-reporting resource-intensive SSA countries) observations:
  - Royalties contributed more than 25 percent of total payments in reporting countries, except Liberia and Mali at about 15 percent.
  - Corporate taxes represented more than 15 percent of total payments; exceptions were Liberia and Sierra Leone, both below 5 percent.
  - Taxes on mining company goods and trade (excises, customs duties and export taxes) contributed more than 15 percent of total payments in Burkina Faso, Guinea, Mali, and Zambia; less than 15 percent in Ghana, Niger, Liberia, Sierra Leone, and Tanzania.
  - Ghana received about 38 percent of payments from state participation cash flows (dividends).
  - 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 at the time given limited use of resource rent taxes in the region.

*Source: IMF.*

### Annex 2. Mining Revenue Payments

### Annex 2. Mining Revenue Payments

### Composition of Mining Fiscal Regime Payments (EITI, 2014–15)
- EITI data indicate inefficient revenue instruments contribute substantively to total payments within mining fiscal regimes.
- Taxes on mining inputs and on trade increase compliance costs for investors and administrative burdens on governments and harm overall attractiveness of mining in the region.
- Company taxes (CIT and income) and mineral royalties tend to make up the cornerstone of fiscal regimes.
- Customs duties, excises, and export taxes make a material contribution to total payments.
- Remaining payments vary across countries.
- It is unclear whether the observed payment patterns are solely attributable to MNE tax avoidance; countries may have attempted to “diversify” revenue sources.
- Combating profit shifting could be associated with material improvements to fiscal regimes and have a greater impact on investment attractiveness than income tax cuts or other incentives.

### Estimated Revenue Losses from MNE Profit Shifting (Africa, mining sector)
- Using relationships estimated in a 2021 IMF Working Paper by Beer and Devlin, the simulation for sub-Saharan Africa (SSA) finds:
  - Average tax rate differentials in SSA range between –13 and 17 percent, with an average of 4 percent.
  - 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.
- Example from the Working Paper estimates:
  - Mining MNEs not constrained by thin capitalization rules may relocate up to 60 percent of the corporate tax base offshore if faced with a tax rate differential of 10 percent.
- Annex Table 3.1 (simulated revenue losses):
  - Average tax rate differential (percent): 4.14
  - Revenue loss (mn USD): 600

### Simulation Methodology (formula and aggregation)
- Country-specific revenue losses approximated using:
  - Baseloss_i = ε_i dτ_i
    - ε_i is a semi-elasticity of taxable profits with respect to international tax rate differentials.
    - dτ_i is a tax rate differential.
- Regional estimate is a weighted average of country-specific estimates, with relative size of country-specific tax bases used as weights.
- Semi-elasticities vary depending on presence of thin capitalization rules and importance of mining revenues in total natural resource revenues.

### Uncertainty and Estimation Issues
- Use of average offshore tax rates is an approximation that likely narrows the true tax differential and may understate incentives to profit shift.
- Two main sources of uncertainty in Equation (A.1):
  - Uncertainty concerning the true semi-elasticity:
    - The WP reports an average semi-elasticity of 3.5, associated with a standard error of 0.6.
    - If 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 an affiliate and the rest of its corporate group; this may be subject to measurement error.
    - The standard deviation of foreign tax rates is 0.06, implying actual tax rate differences could be up to 10 percent smaller or larger than the recorded country-specific differential.
- Impact on regionwide revenue-loss estimates (Annex Table 3.2, millions of US dollars):
  - Tax rate differential / Semi-elasticity — Baseline / Upper Bound
  - Baseline-Baseline: 600
  - Baseline-Upper Bound: 1,230
  - Upper Bound-Baseline: 732
  - Upper Bound-Upper Bound: 1,527
  - Note: “Upper Bound” cells depict estimates using a 90 percent confidence band, taking into account different dimensions of uncertainty.

### Capacity and Institutional Issues
- A lack of capacity across government agencies constrains raising revenue from mining in SSA.
- Capacity in tax policy context includes ability to:
  - set tax policy consistent with overall revenue strategy (and which encourages investment);
  - design tax and revenue legislation;
  - negotiate fiscal terms;
  - administer laws to ensure compliance, detect revenue leakages, and collect what is owed.
- Multiple agencies (Ministry of Mines, customs authorities, government laboratories, judiciary, Members of Parliament, tax departments) must be adequately resourced, possess specialist expertise, cooperate effectively, monitor revenue risks, and proactively search for tax avoidance.
- Agencies need connections into international information networks with fellow resource producers to share information.

### Statutory Company Tax Rates for Gold Producers vs General Rate (2011–18)
- Many countries had lower tax rates on mining relative to the general tax rate applied to other sectors during 2011–18; in some cases the lower effective rate arose through legislated exemptions or tax holidays.
- Examples from Annex Table 5.1 (selected entries preserved as presented):
  - Angola: General CIT 30 (2011–18); Mining specific 25 (2011–18) — Mining rate lower.
  - Benin: General CIT 30 (2011–18); Mining specific 25 (2011–18) — Mining rate lower.
  - Ghana: General CIT 25 (2011–18); Mining specific .. (2011), 35 (2012–18) — General rate lower (2011).
  - Sierra Leone: General CIT 30 (2011–18); Mining specific 30 (2011–18) — Same rate; 2018 RRT introduced; RRT Specific 14* (note: Sierra Leone 2018 RRT rate an IMF estimate).
  - South Africa: General CIT 28 (2011–18); Mining specific 34 (2011–18) — Higher specific rate, but this is a maximum rate.
  - Zimbabwe: General CIT 28 (2011–18); Mining specific 15 (2011–18) — Specific rate lower.
- Note: Legislated rates could overstate actual tax rates companies pay due to resource contracts or negotiated tax holidays.

*Source: IMF staff estimates.*

### Annex Table 6.1

### Annex Table 6.1

### Action 1: Interest Deductions
- Recommended Action:
  - Set annual limits on interest deductions for CIT.
- How to Achieve:
  - A limit on interest deductions removes the need for tax authorities to examine the facts and circumstances around related-party borrowing.
  - Existing investors could be afforded a carry-forward of deductions exceeding the yearly limit as a form of “grandfathering.”
  - 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).
- Targeted Outcome:
  - Interest deductions capped.
  - Reduced transfer pricing analysis.
  - Incentives for debt push downs reduced.
  - Interest limitation harder to circumvent.

### Action 2: Lock in Source Taxing Rights
- Recommended Action:
  - Review domestic definition of permanent establishment to ensure services are captured.
  - Ensure domestic tax law includes taxation of capital gains.
- How to Achieve:
  - Amend domestic definition of a “permanent establishment” to include services rendered in connection with mine operations.
  - Amend domestic tax provisions to include gains from the sale of mine assets, whether those sales occur domestically or offshore.
- Targeted Outcome:
  - Ensure services are included within the domestic law definition.
  - Domestic right to tax capital gains is established.

### Action 3: Combat Abusive Transfer Pricing
- Recommended Action:
  - Establish pricing guidelines for all mineral sales made to related parties.
  - Impose limits on tax deductions for marketing and logistics.
- How to Achieve:
  - Where sales are made to related parties, review pricing approaches against established practices for the sale of that mineral product.
  - Harness formal tax cooperation networks where available.
  - Seek information from authorities in the region (or beyond) where the same mineral is being mined about how its minerals are priced.
  - Purchase specialized industry expertise from market analysts or data publishers.
  - Authorities should provide guidance to taxpayers setting out which reference prices and price adjustments are permissible.
  - 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).
- Targeted Outcome:
  - Pricing methodology agreed with investor for each mineral sold to related parties.
  - No transfer pricing analysis required.
  - Profit shifting via marketing and logistics fees is limited.
  - Less transfer pricing analysis.

### Action 4: Strengthen Double Tax Treaties
- Recommended Action:
  - Limit treaty shopping by inbound investors by adopting the MLI (or adopting its protections bilaterally).
  - Maintain non-zero withholding taxes on royalty and service fee payments.
  - Expand treaty definition of “immovable property”.
- How to Achieve:
  - Tax treaty shopping could be limited by joining the MLI. Alternatively, re-negotiate treaties to adopt protections developed under the BEPS process and identify existing treaties with greatest tax base risks.
  - As a first step, prioritize those countries representing the major sources of inbound investment.
  - Develop a tax treaty policy that maintains a minimum withholding tax on interest, service payments, management fees and royalties.
  - Treaty definition should be expanded to ensure it covers indirect transfers of interests in mining assets (building on similar domestic law definition).
- Targeted Outcome:
  - Limits opportunities for treaty shopping.
  - Withholding tax reductions in treaties more narrowly confined.
  - Outbound income flows have some “minimum” tax applied.
  - Strengthens producing country’s rights to tax offshore indirect transfers.

### Action 5: Limit the Use of Incentives
- Recommended Action:
  - Confine tax incentives to most efficient options.
  - Connect dedicated resource rent tax rate to the CIT rate.
  - Adopt anti avoidance provisions to limit transactions with related parties.
- How to Achieve:
  - Tax holidays should be immediately removed from the suite of incentives offered to investors.
  - 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.
  - For those countries with excess profits or resource rent taxes, the tax rate can be calculated with reference to the standard company tax rate.
  - Impose tax on post CIT cash flows. This means any CIT avoided can be “picked up” by the rent tax.
  - 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).
- Targeted Outcome:
  - Tax incentives limited or phased out completely.
  - Protects revenue by ensuring investors do not receive windfall gains if tax rates are cut after investments have been made.
  - Limits potential for domestic transfer pricing.

### Action 6: Offshore Indirect Transfers (for those countries taxing capital gains)
- Recommended Action:
  - Impose reporting requirement on local entities.
  - Impose CGT liability on local entity for offshore transfer.
- How to Achieve:
  - 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.
  - Adopting either of the two “model” approaches outlined in the PCT toolkit:
    - Model 1: treat an offshore indirect transfer as if it was a transfer of the underlying asset; or
    - Model 2: treat the gains from the offshore sale as domestically sourced income, with tax imposed on the actual seller abroad.
- Targeted Outcome:
  - 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.

### Action 7: Investor Negotiations
- Recommended Action:
  - Limit scope of stabilization provisions for investors, if used.
  - Strengthen negotiation capacity with investors and review of revenue cost.
- How to Achieve:
  - Develop a standardized model clause on stabilization that is afforded to investors if needed.
  - Apply time limits to stabilization, for example, when 2–3 years of production have occurred.
  - 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).
- Targeted Outcome:
  - Stabilization limited to narrow range of fiscal terms and time bound.
  - All negotiations with investors on fiscal terms conducted with specialist expertise.

### IMF Support for Resource-Rich Economies in Sub-Saharan Africa
- Core engagement areas:
  - Surveillance, lending, and capacity development focusing on individual countries, on regions, and on international spillovers.
  - Use of diagnostic and analytical tools including the Tax Administration Diagnostic Assessment Tool (TADAT) and Fiscal Analysis for Resource Industries (FARI).
  - Regional technical assistance centers and the Managing Natural Resource Wealth Thematic Fund (MNRW-TF).
- MNRW-TF details and outcomes:
  - Supports capacity building in resource-rich low and lower-middle income countries.
  - Key emphasis 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 supports IMF research and analytical work on managing natural resource wealth, identifying good practices, and distilling lessons from experiences.
  - Recent outputs include two flagship 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 taxation mainstreaming:
  - Since 2016 and as a part of Article IV consultations, international taxation mainstreaming has been undertaken in 25 countries worldwide, including four SSA countries—Kenya, Mali, Tanzania, and Uganda—with more in process.

*Source: Annex Table 6.1, tassamsea - Annex Table 6.1*

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_Source: https://www.imf.org/-/media/files/publications/dp/2021/english/tassamsea.pdf_