CPABC in Focus July/August 2016 - Page 36

Lori Whitfield is a transfer pricing partner with Deloitte Vancouver, specializing in transfer pricing planning, documentation, and tax controversy. Jarret Robertson is a transfer pricing manager with Deloitte Vancouver, specializing in intercompany financing transactions, quantitative modelling, and tax controversy. Matt Isberg is a transfer pricing analyst with Deloitte Vancouver, specializing in economic and econometric analysis relating to transfer pricing issues. Assessing Transfer Pricing Risk in the Mining Industry – How BEPS Is Changing the Landscape By Lori Whitfield, CPA, CMA, MA, Jarret Robertson, MTax, and Matt Isberg, MA M ining companies have global operations and face unique tax challenges from a transfer pricing perspective. With the introduction of the OECD/G20’s Base Erosion and Profit Shifting (BEPS) Project in 2013, these challenges are likely to intensify. As the BEPS guidance is implemented globally, mining companies will face greater scrutiny with respect to their intercompany transactions and a greater risk of disputes with tax authorities. The BEPS Project is based on the OECD1 Action Plan endorsed by the G20 in July 2013, which identified key actions needed to address BEPS. The final BEPS package, which includes 15 “BEPS Actions,” was presented to and endorsed by the G20 finance ministers and G20 leaders in October and November of 2015, respectively. In Canada, the recent federal budget made it clear that our government is taking concrete steps towards adopting the guidance put forth by the BEPS Project, which will ultimately reshape this country’s tax landscape. This article focuses on the transfer pricing issues currently faced by mining companies, and assesses the risks arising in this industry due to the BEPS Project. Current court cases The international taxation of mining companies has moved into the spotlight in recent years as several material disputes have surfaced in the industry. At the time of this writing, the Canadian uranium miner Cameco is under audit by the Canada Revenue Agency (CRA) for marketing and sales activities carried out by its Swiss subsidiary. The CRA contends that the Swiss subsidiary was set up for the purpose of avoiding taxes in Canada. The amount of tax at stake could be as high as C$1.6 billion, and the dispute has been well publicized.2 Similarly, Australian mining companies BHP and Rio Tinto are under audit by the Australian Taxation Office for allegedly shifting profits through their marketing hubs in Singapore. Both companies have recorded several billion dollars of profit in these marketing hubs, on which they have paid minimal tax. In 2013, Vale, a Rio de Janeiro-based mining company, agreed to pay US$9.6 billion to the Brazilian government after settling a decade-long dispute over corporate taxes on income attributed to its non-Brazilian subsidiaries.3 These examples highlight the financial and reputational risks mining companies face with regard to their transfer pricing policies. Globally, tax authorities have already started to rely on BEPS guidance, but many companies have not taken adequate steps to address the current transfer pricing environment. Organisation for Economic Co-operation and Development ( 1 Peter Menyasz, Bloomberg BNA (2015), “Canadian Appellate Court Directs CRA to Provide Arm’s-Length Price in 2 Cameco,” 24 Transfer Pricing Report 255, page 1. Juan Pablo Spinetto, “Vale to Pay $9.6 Billion to Settle Decade-Long Tax Fight,” Bloomberg, November 28, 2013. 3 buhanovskiy/iStock/Thinkstock ( 36 CPABC in Focus • July/August 2016