EY - Mining and metals tax survey - CFO perspective

Mining and metals tax survey - CFO perspective

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As an increasing proportion of total cost in the mining and metals sector, tax is becoming a strategic driver of business decisions.

In the second half of 2012, we surveyed tax directors from the top 40 global mining and metals houses to examine the challenges they are facing. The particular areas of focus identified were resource nationalism, tax risk management, tax planning and transfer pricing.

Here are five implications for CFOs.

1. Ensure that tax functions have the right skills and capabilities

CFOs must ensure that tax functions have the right skills and capabilities to deal with a highly demanding and dynamic environment. They should encourage tax teams to be proactive in streamlining processes, to achieve more with the same or fewer resources.

They should also ensure that they are able to implement sophisticated transfer pricing solutions. In the light of their strategic role, tax directors should be able to increase their engagement and visibility with the board of directors.

They must provide the board and audit committee with regular reports regarding the tax implications of specific business decisions. CFOs also need to ensure that their tax teams have the skills and involvement in mine planning.

2. Adopt a global approach to tax planning and the management of risk and controversy

Mining and metals companies need to take a global approach to tax risk and controversy management, because tax administrators are increasingly taking a global view of them. For CFOs, this means thinking about tax operating models to ensure that there is a global overview, together with local knowledge of a fast-changing and dynamic tax environment.

When making investment decisions, CFOs and their tax directors must advise on the appropriate level of tax in countries based on comparative investment profiles, and be able to respond to an assessment of tax risk in a particular jurisdiction.

3.  Respond to the growing global challenge of resource nationalism

CFOs and their tax teams must think broadly about how to address the challenge of resource nationalism. Increasingly, they must possess economic and public policy skills, including participation in industry bodies, lobbying through formal channels and engaging in discourse with policy-makers to educate them about returns to the host jurisdiction and what miners can bring to the community.

CFOs must:

  • Have a clear view of policy trade-offs and what impact they will have on project valuations
  • Ensure they adopt transparent approaches to their relationships with governments
  • Ensure robust compliance
  • Build effective relationships with public policy decision-makers.

4. Ensure best practice on transfer pricing

In light of government action around transfer pricing, CFOs need to ensure that tax functions are not complacent about their risk exposure as it changes over time. Together with the tax director, they need to pursue more certainty and evaluate advance pricing agreements.

Together, they must manage the geographic footprint of transfer pricing requirements, as well as the additional risk of adjustments and penalties. They should also adopt new approaches to consistent global documentation and benchmarking to remain efficient and cost-effective.

5. Adopt a proactive approach to aligning tax planning and risk management with strategic decision-making

CFOs need to work with tax directors to ensure that there is greater certainty in place to enable more effective long-term planning. They should look at ways of releasing significant amounts of cash from the provision, taking advantage of government incentives, resolving issues in a timelier manner, and freeing up the best people to manage complex tax controversies and litigation.

They must also make efforts to reduce compliance costs and apply technology to enable better use of resources. By improving interaction with other departments, the tax team should also be able to identify more tax planning opportunities and demonstrate the value of tax to the organization.

For a copy of the full report, please visit www.ey.com/miningmetals