Dutch SOMO and Mongolia’s OT Watch allege Rio Tinto scheme caused massive tax losses

Dutch SOMO and Mongolia’s OT Watch allege Rio Tinto scheme caused massive tax losses
Some $230mn in tax revenue losses resulted from an abusive investment agreement covering the Oyu Tolgoi copper and gold mine, the SOMO report alleges.
By bne IntelliNews February 1, 2018

The Dutch Centre for Research on Multinational Corporations (SOMO) and Oyu Tolgoi Watch (OT Watch) published a report on January 31 alleging that the tax planning of Anglo-Australian mining giant Rio Tinto has led to approximately $230mn in tax losses for Mongolia’s government in relation to flagship copper and gold mine Oyu Tolgoi.

The report puts into perspective an unexpected $155mn tax bill handed to Oyu Tolgoi mine by Mongolia's government two weeks ago. The bill prompted Rio Tinto to meet with Mongolia’s Prime Minister Ukhnaagiin Khurelsukh to discuss “setting up a joint working group” over the mine. The company also announced that it is to open to establishing a new office in the Mongolian capital city of Ulaanbaatar.

The SOMO report also shows how Rio Tinto and its Canadian subsidiary Turquoise Hill Resources, which operates the mine, have avoided nearly $470mn in Canadian taxes by using mailbox companies in the tax havens of Luxembourg and the Netherlands.

“Instead of providing finance for the Oyu Tolgoi mine from Canada, where its owner is registered, they have chosen to shift the mine’s profits to a subsidiary in Luxembourg called Movele, which manages billion dollar loans but has zero employees, a textbook case of treaty shopping,” SOMO researcher Vincent Kiezebrink said.

The $230mn in tax revenue losses resulted from an abusive investment agreement covering the mine, the report said. It alleges that Mongolia, under pressure, facilitated Rio Tinto’s use of tax treaty benefits tied to Luxembourg and the Netherlands and that, even after Mongolia rescinded the tax treaties in 2013, the company managed to negotiate an even lower tax rate in 2015 as part of dispute on the distribution of Oyu Tolgoi’s revenues.

“By agreeing to this arrangement, the government of Mongolia has failed to protect the interests of its people.” Sukhgerel Dugersuren, director of OT Watch, said. “Given current austerity reforms in Mongolia, this tax revenue is much needed and could have allowed the government to nearly double its spending on education or healthcare in recent years.

“The flawed SOMO report contains a number of unsubstantiated and incorrect allegations regarding tax,” Rio Tinto said in an emailed statement.

Flagship gold and copper mine Oyu Tolgoi is seen as a barometer for the country’s investment climate. Oyu Tolgoi is jointly owned by Mongolia’s government (34%) and Turquoise Hill (66%), in which Rio Tinto has a 51% stake.

Copper output at Oyu Tolgoi fell to 157,000 tonnes in 2017 from 201,300 tonnes in 2016, while gold production fell to 114,000 ounces, down from 300,000 ounces.

Turquoise Hill is currently working on a $6bn underground expansion of Oyu Tolgoi, whic is set for completion in 2019.

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