Total Tax Contribution A study of the economic contribution mining companies make to public finances Session title Presenter Name Steve Ralbovsky John Gravelle
Purpose and Outline of the Study Uses data on all the taxes and other payments into the public finances by mining companies in their accounting period to 31 December 2008. Purpose is to provide greater transparency about their overall contribution in the countries where they operate. Uses the PwC Total Tax Contribution Framework, a standardised methodology which is straightforward in concept and does not require tax expertise. Results show new data about the tax and economic footprint of mining companies. We anticipate users of the study will include investors, governments and civil society organisations as well as mining companies. Slide 2
What is the Total Tax Contribution Framework? The total of all taxes paid by a company To any level of government Is much wider than just corporate income tax Makes a distinction between Taxes which are a cost to the company when paid (hit the P/L or capital account) Taxes which the company collects Includes other payments and contributions to government Royalties and licence fees Slide 3
Understanding the Study Results 22 mining companies took part in the study data for year to 31 December 2008 mining operations around the world results show the average picture in a country Follows an earlier study using data for 2007 8 companies took part in both studies Data for 20 different countries mining operations across developed and developing world results also show an average in three regions PwC anonymise and collate but do not verify or audit the data provided Slide 4
Taxes Generated Over the Life of a Mine Mining companies pay many other taxes and contributions in addition to corporate income tax 14 th Americas School of Mines Source: Anglo American plc Report to Society 2008, page 21 Slide 5
Taxes and Contributions Borne Corporate income tax is just 40% of the taxes and contributions borne by mining companies. For every $1 of corporate income tax, there is another $1.50 in other amounts borne. Pie chart show the average taxes and contributions borne as a percentage of the total for a participant in a country across all the countries covered in the study. Slide 6
Taxes Collected Mining companies also administer taxes on behalf of government. For every $1 of corporate income tax there is another $0.52 in taxes collected. Pie chart show the average taxes collected as a percentage of the total for a participant in a country across all the countries covered in the study. Slide 7
Total Contribution to Government Mining companies make a large economic contribution. Participants reported total turnover of $63bn, wages and salaries of $6bn and a total contribution to government of $10.1bn. Table shows all the payments and contributions to government reported by participants. Slide 8
Total Contribution to Government as a Percentage of Turnover On average mining companies contribute an amount equivalent to 15.3% of their turnover to government Total contribution expressed as a percentage of turnover is an indicator of the size of the contribution in the context of the size of the business as measured by turnover. Chart shows the average result for a participant in a country across all the country covered in the study. Slide 9
Employment Taxes per Employee Mining companies are large employers. On average, for every one of 302,880 employees, mining companies paid $15,349 in employment taxes. Employment taxes borne and collected per employee is an indicator of the direct benefit to the public finances of each job created or maintained. Chart shows the average result for a participant in a country across all the countries covered in the study. Slide 10
Total Tax Rate Example Calculation Slide 11
Total Tax Rate The average Total Tax Rate for companies in the study is 39.3%. Total Tax Rate is an indicator of the cost of taxes and contributions borne in relation to profits. Chart shows the average result for a participant in a country across all the countries covered in the study. Slide 12
Total Contribution - by Region The companies taking part provided data on payments in 20 different countries. Chart shows the total contribution to government reported in the study split by region. It is important to note that the amount of data varies by region. Slide 13
Total Contribution to Government as a Percentage of Turnover by Region Taxes borne are a higher % on average in Latin America, due to higher CIT. Taxes collected are a higher % in OECD due to employment taxes. Chart shows the average result for a participant in a country by region. Slide 14
Total Contribution to Government as a Percentage Turnover International Comparison On average, mining companies pay a higher percentage to government in taxes and contributions borne than a broad cross-section of companies as shown in our cross industry studies. 12% 10% 8% 6% 4% 2% 0% Canada US South Africa Australia Mining Study Taxes and contributions borne Taxes collected Chart shows the average result from the mining study and compares this with the average result in cross-industry studies in Australia, Canada, South Africa and the US. Slide 15
Employment Taxes per Employee by Region Employment taxes per employee are high in each region compared to income per capita Chart shows the average result for a participant in a country by region. Source for income per capita: World Bank Development indicators (Doing Business 2010) Slide 16
Each Company Taking Part in the Study Receives Their Own TTC Report For most companies this is the first time they have collected this data TTC is essential management information Internal visibility on impact of taxes Informs investment decisions Management of taxes and tax resource TTC provides easily understandable information on tax for stakeholders Government relations Stakeholder relations and external communications Corporate reporting Slide 17
Anglo American PLC Reporting Slide 18
Newmont Reporting Community - Taxes and Royalties 14 th Americas School of Mines Across the company, Newmont paid $840.8 million in taxes and $89.8 million in government royalties in 2009. The graph below shows the distribution by country. Royalties and Taxes by Country (Millions USD) Government Royalties Taxes Total Percent of Total Australia 47.30 13.00 60.30 6% Ghana 15.86 4.12 19.98 2% Indonesia 23.92 345.38 369.30 40% New Zealand 2.69 18.35 21.04 2% Peru 0.06 338.09 338.14 36% USA - 121.89 121.89 13% Total 2009 89.83 840.83 930.65 Slide 19
Headline Results 22 mining companies took part in the study turnover $63bn, wages and salaries $6bn, total contribution to government $10bn Corporate income tax is only 40% of the amounts borne for every $1 of CIT, there another $1.50 in other taxes and contributions borne, plus $0.52 in taxes collected The total tax contribution to government is equivalent in size to 15.3% of turnover on average Mining companies are large employers 300K employees and total employment taxes $1.7bn employment taxes of $15,349 per employee, high in comparison to income per capita in each region The Total Tax Rate increased in 2008 compared to 2007 the impact of the downturn and falling profits TTC provides new information for mining companies and their stakeholders. We suggest that more mining companies should collect and report on their total contribution to government. Slide 20
What This is NOT Not a hypothetical set of facts applied to equivalent rules in various countries Slide 21
What This IS An indication of the relationship of income taxes to other payments and payments to government by participating mining companies Slide 22
Best Approach to Compare Countries A well-developed hypothetical set of facts Set against the rules of a multitude of mining countries Slide 23
Best Approach to Compare Industries Hypothetical set of facts Well-developed Fair In a variety of industries All set against rules of various countries Slide 24
Publish What you Pay (PWYP) Formed in 2002 Greater transparency and accountability in management of revenues from extractive industries Goal is to require disclosure in audited financial statements Slide 25
Publish What you Pay (PWYP) Practical issues No materiality limits Report by project Report in cash Report as financial statements are issued Audited Slide 26
Extractive Industries Transparency Initiative (EITI) Also formed in 2002 Encourages disclosure of extractive industry revenues by recipient countries Voluntary Slide 27
PWYP & EITI Efforts are focused on exchange funds between companies and governments Slide 28
Further Thoughts... Disclosure aimed at preventing bribery? Foreign Corrupt Practices Act and similar rules already exist Disclosure to better inform investors? Slide 29
Further Thoughts... Disclosure also aimed at letting all see a company s deal with the host country In an effort to encourage fairness Response to resource curse? Slide 30
Best Practices Companies that do disclose do so on a best practices basis Material operations Timely Verified Usually as part of a larger sustainability report Slide 31
Best Practices Lack of uniformity is a drawback Verification what should be the standard? Doesn t this go beyond financial reporting? Balance advantages of confidential financial information against the goals of disclosure Slide 32
Other Thoughts Is disclosure the real issue? Or is limiting the mining industry the real issue? Slide 33
Further Thoughts... Disclosure of how the money is spent by government may allow even greater opportunity to judge fairness Slide 34
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