Ghana plans to reintroduce a mining windfall tax

The Budget and Economic Policy Statement of 2013 reiterates the willingness of the government to implement a windfall tax on mining profits.

The windfall profit tax was introduced in the Budget and Economic Policy Statement of 2012 and was debated, but not implemented, by Parliament in 2012.

The 2012 proposal was that all entities engaged in mining operations in Ghana would, in addition to their annual corporation tax, pay a windfall tax on their adjusted cash balances for the relevant period. The windfall tax rate proposed was a flat 10% on the adjusted cash balance, such balance being calculated by deducting from chargeable income all taxes paid or payable, all capital expenditures incurred on depreciable assets and inventory during the year of assessment and adding any interest allowed as tax deduction,  capital allowances and any negative cash allowance brought forward. The windfall tax would apply to any positive tax adjusted cash balance after the relevant deductions and additions are made.

Despite the opposition of mining companies, this tax was again debated, however the conditions of its implementation are not yet determined, in particular its interaction with the stabilisation provisions.

For further information, please contact Linda Feniniche, Avocat, Hiba Abi Haidar, Avocat, Paris or your usual Herbert Smith Freehills contact.

Reporting by extractive companies on government payments: EU Directive published in the official journal and us court suspends SEC rule

There have been developments in the US and the EU in relation to the implementation of requirements for reporting by extractive industries on government payments.

The new EU Directive (Directive 2013/34/EU) requiring the disclosure, on a project by project basis, of payments to governments by companies operating in the extractive (oil, gas and minerals) and logging industries has become effective by being published in the Official Journal of the European Union. Member States now have until 20 July 2015 to implement the Directive. There are no changes of substance to the Directive since the version published in April, but some reformatting means the relevant Article numbers have changed.

In the US, a summary judgment has been granted by the D.C. District Court in the case of American Petroleum Institute v. Securities and Exchange Commission, No. 12-1668 (D.D.C. 2013) suspending the SEC rule implementing new project by project reporting requirements for SEC registered companies. The decision was based on the SEC rule requiring public disclosure of all the information reported by companies and the fact that disclosure would be required even if it violated local law (the EU requirements also contain no exception from the disclosure requirement where to do so is prohibited by local law). 

The US decision is important to issuers who are listed in both the US and EU. Under the EU Directive, such issuers will be exempt from complying with the EU regime if they comply with an "equivalent", ie the US, regime. The US decision leaves the issue of whether the US regime will be determined to be equivalent, and even it is eventually determined to be equivalent, the timing of that decision, uncertain.

We have produced a briefing on the US court's decision following the challenge to the SEC's implementing rule and a briefing summarises the key aspects of the new EU requirements, when they come into force and how they compare with the US requirements. If you would like a copy of either or both publications, please contact: Greg Mulley or Carol Shutkever 

2013 Budget – Changes affecting the mining sector

The Federal Government’s 2013-2014 Budget (the Budget) contains a number of changes to existing tax rules some of which are expected to have adverse implications on the mining sector.

Changes to accelerated tax depreciation arrangements

The Federal Government announced immediate changes to Australian tax laws which impact income tax deductions available to mining companies. The changes defer deductions for the cost of acquiring mining rights (e.g. exploration permits or mining leases) and information which is first used in exploration, from an immediate deduction to a deduction spread over:

• 15 years; or
• the life of the mine, whichever is shorter.

Although full details are yet to be released, the following expenditure will continue to be immediately deductable:

• costs of acquiring mining rights and information from government authorities;
• costs incurred in generating new information or improving existing information; and
• mining rights acquired under a recognised “farm-in, farm-out’ arrangement.

The changes apply to taxpayers who start to hold the mining right or information after 14 May 2013.

These changes may significantly impact the acquisition prices of exploration assets and also have the potential to inhibit junior mining companies ability to obtain investment through the sale of prospective interests to investors on a full or partial cash basis.

Practically, there are also a number of issues surrounding the 15 year or life of mine deduction mechanisms which are yet to be clarified.

Reduction in funding for mining and energy initiatives

Funding has also been significantly reduced to the following mining and energy initiatives in the Budget with:

• $500 million withdrawn over three years from the Carbon Capture and Storage Flagships Program;
• $370 million deferred over three years from the Australian Renewable Energy Agency;
• $274 million withdrawn over two years from the Coal Sector Jobs package;
• $88 million withdrawn over two years from the National Low Emissions Coal Initiative; and
• $29 million withdrawn over two years from the Coal Mining Abatement Technology Support package.

For further details, please visit the Federal Government Budget website.