INTERNATIONAL Monetary Fund has identified scope for improvement in Uruguay's taxation
regime that was introduced last year to facilitate investments in large-scale
mining projects.
In
a country report captioned ‘‘Uruguay Selected Issues', IMF staff has
concluded that Uruguay Government can further improve the fiscal
framework by reducing one of the major revenue risks of base erosion.
The
report recommends: “the rules for determining the tax base could be
strengthened by: Ring-fencing the tax base by mine area (to include
contiguous mine areas) for IRAE (corporate income tax) and additional
IRAE purposes and introducing thin-capitalization and limits on
deductibility of interest for tax purposes.”
The
Government should also consider introducing express provision for
deductibility of financial contributions by a mining company to fund
future mine site closure and rehabilitation costs.
It observes: “The administrative burden and transfer pricing opportunities associated with current net-back basis for determining the royalty rate base can be reduced.”
Issued on 10 th January 2014, the report has suggested that the Government should consider charging royalty on a gross value basis (at
the price realized at point of sale within the country for domestic
sales or FOB price for exports) but at a lower rate than the current
rate on net-back back basis.”
It
should also introduce arm's length pricing principle for the rate base
valuation for royalty purposes coupled with advance pricing agreement
for iron-ore sales.
It
has also concluded that the mining fiscal regime is capable of
capturing for government a fair share of fiscal take while remaining
competitive for investment. The regime imposes a lower tax burden on
less profitable mines, thus encouraging development of marginally
profitable iron ore deposits and captures a higher take in highly
profitable mines. This progressivity of the fiscal regime allows it to
generate a competitive government take without deterring investment in
profitable mines.
According
to another IMF report on Uruguay, the country's legislature had
approved in September 2013 a law to provide guidelines for investment in
large-scale mining. The report titled ‘Uruguay Staff Report for the
2013 Article IV Consultation' says that the passage of the law enables
the exploitation of iron deposits in central Uruguay. The law has also
laid down the taxation regime and a revenue allocation mechanism.
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