Publications
Publications
- 2016
- International Taxation and the Extractive Industries
Fiscal Issues for Cross-Border Natural Resource Projects
By: Joseph Bell and Jasmina Chauvin
Abstract
Projects that cross national boundaries give rise to the complex question of how the project's taxable income should be allocated among the national entities. This chapter utilizes a hypothetical mining project with the mine and infrastructure in two different countries to illustrate the fiscal issues arising out of cross-border projects. The unitary nature of the mine and its downstream infrastructure, each fully dependent upon the other, means that any exercise to separate the two into independent entities for tax purposes is highly arbitrary. No comparable uncontrolled transactions are likely to exist for applying the traditional arms-length principle. The cost-plus method can result in estimates for taxable income allocated to the downstream jurisdiction that vary by a factor of four or more. An alternative, not without its own limitations, is to apply a profit-split or formulary allocation to apportion income between jurisdictions. These ambiguities become particularity important when tax rates in the relevant national entities differ because then they can be used strategically, namely to shift project income to the more favorable jurisdiction.
Keywords
Extractive Industries; Business & Government Relations; Transfer Pricing; Taxation; Infrastructure; Cross-Cultural and Cross-Border Issues; Business and Government Relations; Mining Industry
Citation
Bell, Joseph, and Jasmina Chauvin. "Fiscal Issues for Cross-Border Natural Resource Projects." Chap. 8 in International Taxation and the Extractive Industries, edited by Philip Daniel, Michael Keen, Artur Świstak, and Victor Thuronyi, 190–214. Routledge Studies in Development Economics. Routledge, 2016.