Golden promises and unpaid bills: The case of Oyu Tolgoi and profitable tax avoidance by Rio Tinto in Mongolia
SOMO and Oyu Tolgoi Watch have published a report about how the mining giant Rio Tinto, and its Canadian subsidiary Turquoise Hill Resources, avoided nearly $470 million in Canadian taxes by using mailbox companies in two tax havens, Luxembourg and the Netherlands. The publication also shows how an abusive investment agreement covering the Oyu Tolgoi copper and gold mine has resulted in a $230 million tax revenue loss for Mongolia.
SOMO researcher Vincent Kiezebrink: “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.”
This mailbox subsidiary enjoyed a very low average effective tax rate of 4.19% over the past years, likely due to a beneficial tax ruling with Luxembourg’s tax authorities. As a result of this tax scheme, Rio Tinto’s subsidiary Movele has paid US$89 million in taxes in Luxembourg, which is US$470 million less than what would have been paid in Canada, if no tax avoidance scheme had been employed. The company reports that this arrangement was approved by Canadian authorities.“This is an astonishing subsidy from Canadian taxpayers,” said Jamie Kneen, Communications and Outreach Coordinator for MiningWatch Canada. “The public needs to know how and why this approval was granted.”
In addition, Rio Tinto and the other corporate investors behind Oyu Tolgoi achieved far-reaching concessions from the Mongolian government which severely limit the tax revenues Mongolia can hope to receive from the mine. Under pressure, the government of Mongolia facilitated Rio Tinto’s use of benefits enshrined in tax treaties with Luxembourg and the Netherlands;tax treaties which Mongolia unilaterally rescinded in 2013 due to concerns that they facilitated tax avoidance. Rio Tinto was able to negotiate an even lower tax rate in 2015, after a dispute over the distribution of Oyu Tolgoi’s revenues. As a result, the Mongolian government has missed out on approximately US$230 million in taxes over a five-year period.
Sukhgerel Dugersuren, director of OT Watch states:“By agreeing to this arrangement, the government of Mongolia has failed to protect the interests of its people and 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.”
OT Watch, MiningWatch Canada, Inter Pares, Canadians for Tax Fairness and SOMO urge the governments of Mongolia, Luxembourg, Canada, the Netherlands, and Australia, as well as Rio Tinto and other stakeholders involved with Oyu Tolgoi, to work towards reviewing and revising the mine’s investment arrangement and the tax avoidance scheme. Action must be taken to ensure that mining in Mongolia also serves the interests of the Mongolian people, not just corporate profits.