New avenues for increased taxation include carbon emission schemes
VANCOUVER, Nov. 16 /CNW/ - A new Ernst & Young report suggests the Canadian mining and metals industry may become a prime target for increased taxes and levies as the government faces budget pressures to fund the deficits created during the global financial crisis. Mining companies will have to employ more globally focused tax planning to lessen the potential impact.
"Although recent commodity prices have been down due to the global recession, there was a period of superior profits and cash flow for mining and metals companies that ended just last year when the financial markets collapsed," said Bruce Sprague, Tax Partner at Ernst & Young in Vancouver. "This historic period of generous commodity prices is what has made mining and metals companies a favoured target of revenue authorities for tax audits and investigations."
As tax authorities continue to become more thorough in their audits, mining tax executives should consider devoting more time to developing effective working relationships with them.
With the increased focus on the industry, 72% of global mining and metals companies who participated in Ernst & Young's Global mining and metals tax survey 2009 reported an increase in controversy with tax authorities. The authorities are increasingly sophisticated in their approach, with new and stricter documentation requirements, and better cross-border information sharing methods.
These improved methods are significant considering the report also revealed that 92% of the mining and metals companies surveyed have cross-border intercompany transactions. But while the commercial and operational aspects of mining and metals companies are run globally, the tax function still tends to be run on a national basis.
The report also reveals that global climate change is a key issue tax executives need to deal with in the intermediate and long term as governments move to introduce carbon emissions schemes, which are likely to have a direct impact on the profitability of the mining and metals sector.
"Carbon emission schemes open up new avenues for governments to increase taxation and alternatively provide tax incentives to reduce greenhouse gas emissions," said Sprague. "The survey indicates that despite this emerging issue, there has been very little involvement of the tax function in planning for the impact of climate change legislation on the business."
Tax executives in the industry do appear to recognize the significance of emerging climate change legislation and related greenhouse gas regulation. More than 40% of survey respondents said that this was something that they should consider in the future.
However, the survey does indicates that few mining and metals companies are taking a holistic approach to tax planning and therefore may not be realizing tax benefits associated with supply chain planning, and the related cost savings that can be captured from appropriate intercompany transfer pricing.
"In the current rapidly changing economic environment, companies need to dedicate increased time to tax planning in order to take advantage of opportunities, decrease taxes and improve shareholder value," said Sprague.
Overall, in these tough economic times, the global tax executive must learn to do more with less. Tax functions will continue to face significant challenges. As the global economy slowly pulls out of recession, demand for minerals and metals will likely rise. Tax functions will be faced with higher income taxes, which will move planning to an even higher priority.
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SOURCE EY (Ernst & Young)
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