The Mongolian government has issued its first transfer pricing tax assessment, hitting a mining company with a tax bill of approximately USD 228 million and a denial of USD 1.5 billion in carried forward losses, the OECD said March 18. The tax assessment was issued in late 2020 and it currently remains in dispute.
The move represents “a significant milestone and step forward” for the Mongolian tax administration in strengthening its efforts to combat tax base erosion and profit shifting (BEPS) in the mining sector, said the OECD. The 37-member nation group has been working with Mongolia since 2019 to shore up its tax collections from the extractives sector, which contributed more than 80 percent of Mongolia’s exports and 24 percent of fiscal revenues in 2019.
“Mongolia is successfully implementing the BEPS measures by introducing a number of international taxation provisions,” the OECD said.
Other international organizations — such as the World Bank Group; the International Monetary Fund; the Intergovernmental Forum on Mining, Minerals, Metals, and Sustainable Development; and the OECD/United Nations Development Program Tax Inspectors Without Borders program – have lent their technical assistance in recent years, as well, to help Mongolia align its tax rules and practices with international best practices.
Launched in 2015, the Tax Inspectors Without Borders program is designed to support developing countries in building tax audit capacity. The program sends tax experts from around the world to work side by side with local officials on pre-audit risk assessment and case selection, investigatory techniques, transfer pricing audits, and sector-specific issues.
Despite the global COVID-19 crisis, Tax Inspectors Without Borders program experts continue to provide virtual guidance to countries in Eastern Europe, Africa, Asia, and Latin America.
The does not mention the commodity in question but we know Mongolia exports a oil to China as well as copper and gold. Its two main gold mines were owned by a Singapore holding company which purchased them from a Canadian multinational several years ago. If the product is gold, this could be an interesting issue given the recent boom in gold prices.