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London, 3 JUN 2010 — The taxes and other contributions to government that mining companies pay are an important element in the creation of prosperity and stability of the countries in which they operate. However, the full extent of this contribution is not always recognised. PricewaterhouseCoopers’ second Total Tax Contribution (TTC) study of the global mining industry aims to bring greater transparency to the full economic contribution that these companies make by providing data on all taxes and other payments made to government.
The results show that mining companies make a large economic contribution to public finances in relation to the size of their operations. On average, the companies participating in the study paid an amount equivalent to 15.3% of their turnover to government, comprising 10.8% in amounts borne and 4.5% in amounts collected. These companies pay many other taxes and contributions in addition to corporate income tax which, on average, represents only 40% of all the taxes and contributions they bear. For every $1 of corporate income tax paid, these companies pay another $1.50 in other taxes and contributions borne, plus $0.52 in taxes collected.
Susan Symons, global Total Tax Contribution leader, PricewaterhouseCoopers comments:
“There is increasing pressure on both government and business to increase transparency in the extractive industries, with a call for companies to ‘publish what they pay’, and for governments to ‘publish what they receive’, and how they use these revenues.
The mining industry, perhaps more than most other industries, remits large amounts of non-income taxes to various levels of government in the form of employment taxes, royalties, VAT/sales/use taxes, infrastructure funding and other levies. The income tax portion of a company’s financial results is highlighted in its financial statements, but other taxes and payments are not segregated in its results, thus diminishing what it appears to pay to government.
The TTC Framework, used in this study, goes beyond income taxes to collect data on all taxes and other payments to government to give a wider view of the entire tax burden of an enterprise. It provides a good basis for mining companies to report all the various taxes and contributions they make, in a non-tax-technical format which is relatively easy for all stakeholders to understand.”
The study covers a turbulent period, which saw the advent of the global financial crisis and a fall in commodity prices. The impact of the downturn on the mining sector is reflected in the study results, with an increase in the Total Tax Rate (TTR) – the tax cost as measured in relation to profitability. The average TTR for mining companies increased from 32.2%, when the first study was conducted a year earlier, to 39.3%.This is because, while taxes on profits may fall with lower profitability, other taxes and contributions (which are not linked to profits) do not fall and thus become relatively more expensive.
The companies participating in the study reported total figures for turnover of US$62.9bn, wages and salaries paid to employees of US$6.0bn, and a total contribution to government of US$10.1bn. The average total contribution to government by a company in a country reported in the study was US$190 million, comprising an amount of US$146 million borne and US$44 million collected.
Jason Burkitt, UK mining leader, PricewaterhouseCoopers said:
“Mining companies extract natural resources and as a result are naturally the subject of intense scrutiny from government, civil society organisations and other stakeholders. They are large employers and on average, for companies in the study, employment taxes were $15,349 per employee. This is an indication of the direct benefit to public finances of each job created or maintained by these companies. All companies are coming under increased public scrutiny regarding the taxes they pay, and mining companies are at the forefront in this debate. Mining companies pay taxes throughout the life cycle of a mining project, and pay many other taxes in addition to corporate income tax, including employment taxes, property taxes and indirect taxes. In addition, mining companies often make significant further contributions to government finances through sector-specific taxes, royalties and levies, and contributions to local infrastructure such as roads, schools and housing.
“Our work on tax transparency shows that some mining companies are including TTC data in the communication of their tax affairs and leading the way in corporate reporting for tax.”
Notes to Editor:
The study was carried out using data provided by 22 mining companies and has been collated and anonymised to provide the study results in their accounting period to 31 December 2008 (or equivalent period). PwC has not verified, validated or audited the data, and therefore cannot give any undertaking as to the accuracy of the study results. The companies taking part in the study provided data for mining operations of different sizes and stages of development in different countries around the world. The results show an average for a company in a country of operation. They provide a good picture of how taxes and other contributions impact on these companies, but cannot necessarily be considered as representative of the industry as a whole.
The study has been carried out using the PwC Total Tax Contribution (TTC) Framework. TTC provides a standardised methodology for companies to measure and communicate all the taxes and contributions that they pay. It is straightforward in concept, not tax technical and therefore relatively easy for stakeholders, many of whom have limited knowledge of tax complexities, to understand.
The TTC Framework makes a distinction between taxes borne and taxes collected. Taxes borne are the company’s own cost and will impact their results; for example, property taxes will form part of property costs. Taxes collected are those that the company administers on behalf of government and collects from others; for example, employee income taxes deducted through the payroll.
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