How much do governments rake in? Mining giants come clean on taxes

The global movement to tackle transparency and tax justice is shifting from talk to action. And the multinational behemoth Glencore, once criticised as being one of the world’s most secretive firms, is the latest of the major global mining houses to report its payments to governments in every country in which it operates.

The Payments to Governments report 2015, released by Glencore on June 29, shows it paid $5-billion to governments, of which $2.86-billion was paid in taxes and royalties in relation to its extractive operations. The largest sum, $867-million, was paid to the Australian government.

The South African government was eighth in line and receiving $83.5-million. This is equivalent to 0.6% of total corporate income tax collected in the 2014-2015 tax year. The commodities giant is based in the low-tax jurisdiction of Switzerland.

Earlier this year Anglo American reported that in 2015 it had paid slightly more than $4-billion to governments, of which $862-million was paid to South Africa.

Rio Tinto reported a total $4.5-billion paid to governments in 2015, $93-million of which was paid to South Africa, where its subsidiary, Richard’s Bay Minerals, operates. BHP Billiton paid $7.3-billion to governments last year.

These disclosures were made in terms of a European Union transparency directive, which requires all large EU-listed companies to disclose certain payments to governments, country by country and project by project.

According to KPMG in the United Kingdom, the directive applies to companies involved in the exploration, prospecting, development and extraction of minerals, oil and gas, and the logging of primary forests. The payments that must be disclosed include taxes levied on income, production or profits, dividends, royalties and fees, and payments for infrastructure. Payments in kind need to be reported in value or volume.

The directive is one of several initiatives that have begun to take effect. In a parallel process, the G20 nations and the Organisation for Economic Co-operation and Development have been working on 15-point plan to tackle base erosion and profit shifting, which aims to stop multinational corporations from exploiting tax loopholes that help them to dramatically minimise their tax liabilities.

Last week, the United States Securities and Exchange Commission completed rules that will require energy companies to report their payments to governments for extracting oil, gas and minerals, which could affect 755 companies, the Washington Post reported.

The emphasis on extractive industries is a result of the destructive nature of that business, said Peter Major, director of mining at Cadiz Corporate Solutions. “Extractive industries do substantial permanent damage. You are using one-off resources, and polluting a fair amount to get it. Mining is probably is the most destructive business on the planet,” he said.

The African Tax Administration Forum (Ataf) welcomed the disclosure requirement as one way to drive transparency in the extractive sector. “The increase of transparency works to benefit both taxpayers and the governments by forming a link that asks questions of both parties,” the Ataf executive secretary, Logan Wort, said. “On the one hand, companies are expected to pay for the resources they extract from the country within the boundaries of that particular country’s laws.

“Similarly, citizens have information on the amounts paid by the companies and can ask their governments questions about how the money is being spent.”

Wort said the disclosure is to ensure that countries receive proper value for the resources that are extracted. It will allow governments to ascertain the post-export trade value of resources, when they are sold to related and subsidiary companies and then sold onwards at huge mark-ups. This practice deprives developing countries of revenue based on the true value of the resources.

By disclosing these payments, mining houses effectively put the ball back in the court of the governments. Glencore says as much in its report: “We believe that communities should have access to clear information on how much their governments have earned from the extraction of natural resources. It is also vital that they can find out how these revenues contribute to the development of their society and their country’s economic status. “Ensuring that our host countries and communities have transparent information about our payments to their governments also reduces the potential for corruption by all parties.”

John Capel, the executive director of the Bench Marks Foundation, which monitors corporate social responsibility, said although the publication of the figures should be welcomed, it was more important to know what had been allocated for mine closure and rehabilitation.

The first step is knowing what income the state receives from these operations, but the next is to ensure that this money goes back into the mining areas and addresses the “havoc” caused by extraction. “Government doesn’t ringfence this income in any way, and municipalities often don’t have the resources to sort out these problems,” Capel said.

Major cited the example of Zambia, and others, which had in the past imposed a special tax on the import of mining-related supplies and equipment. “That tax was supposed to go into the development of local industries that could support the mines and reduce imports … but the government just took that money and used it for other budget shortfalls,” he said.

“This type of reporting that we now see would have cleaned up Africa decades ago. We wouldn’t have had Marikana if we had this kind of transparency.”

This sort of requirement works well if everyone has to do it, but it doesn’t work on an individual, voluntary, basis Major said. BP was one of the first who tried to report payments country by country nearly 15 years ago, but it incurred the wrath of Angola, which did not want to be transparent about how those revenues were used.

Glencore’s Bulga coal mine near Singleton in Australia
Down under: Glencore’s Bulga coal mine near Singleton in Australia. The company paid the country $867-million in 2015. (Brendon Thorne)

In an article published last week by Pambazuka News, Kwesi W Obeng of Tax Justice Network Africa said for Africa to transform, the continent must harness the potential benefits of its vast mineral wealth. “Crucially, Africa must unite in a broad and strong push for long-overdue global tax reforms,” Obeng said.

But the fiscal and public agencies governing the extractive sector in many African countries are weak and porous. In many cases, companies enjoy excessive tax incentives, Obeng said, which is exacerbated by extensive unethical tax avoidance, transfer mispricing and anonymous company ownership schemes.

To address this weakness, and after decades of responding to externally driven transparency agendas, African governments embraced the Africa Mining Vision (AMV) in 2009, and one of its pillars is fiscal regime and revenue management.

“Yet, seven years after its adoption, studies show that implementation of the AMV is slow at best. In a number of cases, measures taken by African governments undermine the AMV and erode their own countries’ revenue bases,” he wrote.

For companies, the disclosure of payments to governments is at least a step towards transparency and to showing they are good corporate citizens.

“We all know there are bad guys out there, and this type of reporting doesn’t show kickbacks, bribes, favourable loans, houses, automobiles, travel and other things. But it’s a darn good start,” said Major. “But it’s got to be enforced ruthlessly in every country in Europe for it to work.”

Forced disclosure has positive spin-offs

A European Union directive requires major listed extractive companies to disclose payments to governments.

The big mining companies have issued these reports for mercenary reasons, but it is good that they have done so, said Peter Major, director of mining at Cadiz Corporate Solutions.

But getting the nod from some of the world’s largest pension funds is part of the deal.

The Extractive Industries Transparency Initiative lobbied for greater transparency and it lists many major extractive companies, including Glencore, Anglo American and BHP Billiton, as supporters of it, as are 95 global institutional investors who collectively managed more than $19-trillion as of July 2013. In a statement of support, the investors explain they are concerned that extractive companies are particularly exposed to the risks posed by corrupt operating environments.

“Companies that make legitimate, but undisclosed, payments to governments may be accused of contributing to the conditions under which corruption can thrive,” the statement said. “This is a significant business risk, making companies vulnerable to accusations of complicity in corrupt behaviour, impairing their local and global ‘licence to operate’, rendering them vulnerable to local conflict and insecurity and possibly compromising their long-term commercial prospects in these markets.”

Glencore has had to play its cards in the open since it listed. With the chief executive’s wealth tied up in the company, listing is thought to have been a necessary exit strategy. “And when the share price fell, it had to be more open,” said Major. “No one has done as big an aboutface as Glencore.”

It has previously reported on its contributions in countries in which it was most active. It has now reported on all in which it operates extractive businesses. Not included are payments relating to refining processing, marketing and trading, which make up the remaining $2.14-billion in Glencore’s total $5-billion government contributions in 2015.

Major said he personally would expand on the report and tally the jobs created, a more important metric than taxes. – Lisa Steyn

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