37258 V 2 Appendix A1
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Appendix A1. Sample Royalty Provisions Extracted From National Laws and Regulations 37258 v 2 Appendix A1 Sample Royalty Provisions Extracted From National Laws and Regulations Public Disclosure Authorized Note: Governments frequently amend laws pertaining to tax matters. The material provided in this appendix is intended to demonstrate the royalty approaches that a cross- section of governments use now or have used in the past. Changes may have occurred and readers are encouraged to verify whether the information reported remains accurate. The statutory extracts may have different formatting than appears in the original legislation. For the sake of brevity, articles in some extracts have been selectively deleted. When available, source Web sites are given. Information is reported by region and in the following order: A1.1 AFRICA • Angola • Botswana Public Disclosure Authorized • Ghana • Mozambique • Namibia • Nigeria • South Africa • Tanzania • Zambia • Zimbabwe A1.2 ASIA/ AND PACIFIC • China Public Disclosure Authorized • India • Indonesia • Mongolia • Myanmar • Papua New Guinea • Philippines A1.3 AUSTRALIA • New South Wales • Northern Territory • Queensland • Western Australia Public Disclosure Authorized A1- 1 Appendix A1. Sample Royalty Provisions Extracted From National Laws and Regulations A1.4 EUROPE • Finland • Russia A1.5 LATIN AMERICA • Argentina • Bolivia • Brazil • Chile • Cuba • Dominican Republic • Mexico • Peru • Venezuela A1.6 NORTH AMERICA • Arizona • British Columbia • Michigan • Nevada • Northwest Territories • Ontario • Saskatchewan A1- 2 Appendix A1. Sample Royalty Provisions Extracted From National Laws and Regulations A1.1 AFRICA Angola 1. Summary Diamond and oil rich Angola has experienced decades of civil unrest but has stabilized recently. Perhaps reflecting the reality of this unrest it has in the past and continues today to implement a negotiated fiscal regime on a mine by mine basis. The relevant provision is found in Article 15 of the Mining Law No. 1/92. In terms of Article 15, both the base and rate of mineral royalties are negotiable. Guidelines for interpreting Article 15 have been provided and documented1 by the Ministry of Geology and Mines, which can be summarised as: • royalties are payable on either run-of-concentrate or run-of-mine value (depending on the situation and the outcome of negotiations) and; • guideline royalty rates for negotiation purposes are precious metals (5 percent), semi-precious stones (4 percent), metallic minerals (3 percent) and other minerals (2 percent). 2. Extracts from source legislation Mining Law, Law No. 1/92 of 17 January 1992 Article 15. Fiscal Regime … 2. An applicable fiscal regime will be established, with precision, for each Mining Title, which will include: (a) A tax on the value of run-of-mine mineral resources, where there is no processing, where there is processing, which will be the result of using a perceptual tax on the annual production value, to be established in accordance with the unit value of each mineral resource to be extracted. This tax, also referred to as "royalty", may be paid in kind, when this is convenient to the Angolan State. In any case, it is considered as an operating cost and will be paid monthly. … 1 Mines (2000). Southern African Development Community – European Union Mining Investment Forum. Lusaka, Zambia, 10th – 13th October 2000 and; SADC Policy Profile (2001). Australia in Sub-Saharan Africa Mining Conference, 26 – 27 July 2001. pp. 19 – 23. A1- 3 Appendix A1. Sample Royalty Provisions Extracted From National Laws and Regulations Botswana 1. Summary Mineral royalties are governed by the Mines and Minerals Act No. 17 of 1999 and the comprehensive Model Mineral Agreement2. All minerals are owned by the government of Botswana. The Ministry of Mineral Resources and Water Affairs governs mineral rights administration through firstly, the Department of Geological Survey, who deliver services at exploration stage, secondly, the Department of Mines, who deliver services at development stage, and thirdly, the Mineral Policy Committee, which gives policy guidance to the administration. Mineral royalties for each type of mineral are stated in the Mines and Minerals Act3 and are levied as a percentage of the arm’s-length gross market value “at the mine gate”, i.e., sales value less transport, insurance and other costs allowed by the Minister. The rates are: • Precious stones, petroleum and natural gas: 10% • Semi-precious stones, precious metals, coal and radioactive minerals: 5% • Building materials, industrial minerals, oil shales and others: 3% There are two important lessons to note from the Botswana royalty regime. The first is some flexibility to allow ‘other costs’ to be deducted for the purpose of calculating the royalty amount and the second lesson is provision for remittance of all or part of the royalty in terms of Section 67. These provisions have afforded government and investors some flexibility to reduce the impact of royalties, especially for minerals that could be beneficiated locally. It is acknowledged that Botswana has established a track record of negotiating fair agreements with investors that benefit both parties. 2. Extracts from selected legislation Republic of Botswana Mines and Minerals Act No. 17 of 1999, Assented to 01 September 1999, promulgated by Gazette dated 17 September 1999 Part X – Financial 66. Royalties (1) Subject to the provisions of this Part, the holder of a mineral concession shall be liable to pay royalties to the Government on any mineral obtained by him in the course of the exercise of his rights thereunder at the rates and in the manner prescribed under this section. (2) The royalties payable shall be the following percentages of gross market value as defined under subsection (3) below – Mineral Type Percentage Precious Stones 10% Precious Metals 5% 2 Model Mineral Agreement (1995). Model Mining Agreement prepared by the Economic and Legal Advisory Services Division, Commonwealth Secretaria, London and printed by the Government Printer Republic of Botswana. 3 Mines and Minerals Act 17 of 1999. Government Gazette dated 17 September 1999, Assented to 01 September 1999. See Appendix 1 for text. A1- 4 Appendix A1. Sample Royalty Provisions Extracted From National Laws and Regulations Other minerals or mineral products 3% (3) The term “gross market value” shall for the purposes of calculation of royalties be defined as the sale value receivable at the mine gate in an arms length transaction without discounts, commissions or deductions for the mineral or mineral product on disposal. (4) Royalty shall be paid on a mineral or mineral product on receipt of each payment or other consideration for such mineral or mineral product, and each royalty payment shall be accompanied by full particulars of the mineral or mineral product sold or disposed of and the terms of payment therefor: Provided that any disposal for other than monetary consideration or consideration deferred for a period beyond industry practice shall be referred to the Minister for determination of royalty in terms of subsection (5) below. (5) Where it appears to the Minister that minerals have been disposed of otherwise than in an arms length transaction, the Minister shall determine the royalty payable on the basis of prices ruling in the industry, and the royalty so determined shall be payable on demand; Provided that the royalty so determined and paid may be varied by court review or arbitration and the sum of any such variation shall thereupon become payable or repayable as the case may be. (6) For the purposes of this section, the expression “arms length transaction” shall mean a transaction between a willing buyer and willing seller in the open market where the purchase price for the sale is not influenced by any special relationship or other arrangement between the parties to the transaction and is not affected by any non-commercial considerations and specifically excludes any barter, swap, exchange, or transfer price arrangement, restricted or distress transaction which is associated with special financial, commercial or other considerations. 67. Remission of royalties (1) The Minister may, in the public interest, remit all or part of any royalty payable on any mineral or mineral product for such period as he may determine. (2) The Minister may exempt from liability to royalty samples of minerals required for the purpose of assay, analysis or other examination. 68. Deferred payment of royalty The Minister may, on application being made to him by the holder of a mineral concession, defer payment of any royalty due from such holder for such period and subject to such conditions as he may determine. 69. Prohibition on disposal of minerals (1) If the holder of a mineral concession fails to pay any royalty due in respect of that concession on or before the due date or any extension thereof, or if the Minister has reason to believe that minerals have been produced from any area and royalties have not been paid in respect thereof, the Minister may, by order served on the holder of the mineral concession concerned, prohibit the disposal of any mineral from such area, or from any other area held by such holder under a mineral concession until all outstanding royalties have been paid or until an arrangement has been made, acceptable to the Minister, for the payment of such royalties. (2) Any holder of a mineral concession who contravenes or fails to comply with the provisions of an order given under subsection (1) and any