Tax victory in Mongolia - News.MN

Tax victory in Mongolia

Tax victory in Mongolia

It was a big deal when Mongolia — not long after a financial crisis — announced that it had recovered USD228 million in owed taxes from a multinational mining giant in 2019.

The case happened to be the initial fruits of a campaign to strengthen the country’s tax system through a collaboration with the Organization of Economic Cooperation and Development, the United Nations Development Programme, and other groups.

The successful outcome shows that curbing tax evasion can facilitate the global fight against poverty.

3 Key Things You Should Know About Mongolia’s Tax Win

  • Mongolia recovered USD228 million in evaded taxes from the mining company Turquoise Hill and prevented the company from writing off USD1.5 billion in taxes going forward.

  • If the USD228 million was collected at the time it was owed, Mongolia could have doubled its spending on health care and education.

  • Global tax evasion costs countries more than USD500 billion annually, with developing countries losing more than USD100 billion. This deprives governments of money that would otherwise be spent on education, health care, transportation, electricity, shelter, and other services.

Mongolia is sometimes referred to as “Mine-golia” because the country possesses trillions of dollars worth of copper, gold, silver, and coal deposits, along with other minerals. Mongolia’s mining sector accounts for 94% of the country’s exports and 19% of gross domestic product and is dominated by multinational companies like Turquoise Hill that have the technical expertise and financial resources to manage projects.

Despite having opened up its natural resources to multinational corporations for decades, the country has yet to reap the rewards. In fact, nearly one-third of Mongolians live in poverty, while another 15 percent are perilously close to falling below this line. An estimated 65% of families struggle with food insecurity and the government spends less than half the global average on health care.

In 2009, the Canadian mining company Turquoise Hill, which is owned by the conglomerate Rio Tinto, signed an agreement with the Mongolian government to manage and operate the Oyu Tolgoi mine, one of the world’s largest sites of copper and gold.

Mongolia would get a portion of sales generated from Oyu Tolgoi’s minerals, while also raising money through taxes on Turquoise Hill. If all things went according to plan, this revenue could boost public spending on things like education, health care, and poverty reduction.

But the mine failed to yield much financial benefit for the government over the next several years, despite Turquoise Hill eventually announcing more than USD1 billion in annual revenue from the project.

The Mongolian audit found that Turquoise Hill had funneled money related to Oyu Tolgoi through shell companies in the Netherlands and Luxembourg to heavily reduce its tax burden. The evidence was so cut-and-dry that the tax bill of USD228 million was paid soon after it was brought to light.

The country also enacted a law preventing companies from offsetting their current tax bills by pointing to ongoing investments and future expenses. This “ring-fencing” rule, which isolates taxable income, is what blocked Turquoise Hill from offsetting USD1.5 billion.

Mongolia is now in a better position to benefit from its natural resources, hold corporations accountable, and generate revenue for public spending on things like education, health care, transportation, electricity, housing, and more.

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