Revised MRRT legislation provides clearer picture for miners
Sunday, 18 September 2011 — The second draft of the Mineral Resource Rent Tax (MRRT) legislation is considerably more robust and provides a clearer picture for miners on implications for M&A and administrative aspects of the tax, according to Ernst & Young tax partner Andrew Nelson.
“This is important because there was considerable detail missing in the first draft, including whole sections,” he says.
Nelson says the second draft also revisits core principles, including an important change to the way the taxing point value is to be calculated.
“The subtleties of this change may be lost on those businesses that are not progressed in looking at how the MRRT will impact their business,” he says.
“Essentially the taxable value is now required to be determined using a netback approach.”
“Prior to this change, companies had greater flexibility to adopt a method of reasonably apportioning sales proceeds to a point earlier in the value chain. This new approach will still present technical and valuation challenges, foremost of which is determining what an appropriate commercial return is for a downstream operations provider.”
Nelson says the detail revealed in this second draft allows potential buyers and sellers in the sector to better understand and model the implications for asset transactions and how this will impact deal values.
“When you buy an interest in a project, there is a principle underpinning the tax that requires you to step into the shoes of the vendor. Until now there have been large gaps in the draft legislation required to understand the mechanics of this process for full and partial mining and exploration rights disposals. While the mechanics of the tax are now clear, there remain real challenges in applying the law to individual circumstances”.
Nelson says that the second draft appears to reflect many of the issues raised during the consultation phase following the release of the first draft in June, “although there are still a lot of esoteric issues and subtleties to be worked through“.
“However much of the core detail is now there and miners need to get on with preparing their business to deal with it from 1 July next year.”
-ends-
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
Ernst & Young refers to the global organisation of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organisation, please visit www.ey.com.
This news release has been issued by Ernst & Young Australia, a member firm of Ernst & Young Global Limited.
Liability limited by a scheme approved under Professional Standards Legislation.
Contact details
Megan Ball
Ernst & Young
Tel: +61 2 8295 6427