Canadian mining and metals companies becoming targets for increased taxes: Ernst & Young

A new Ernst & Young report suggests the Canadian mining and metals industry may become a prime target for increased taxes and levies as the government faces budget pressures to fund the deficits created during the global financial crisis.

The study suggests mining companies will have to employ more globally focused tax planning to lessen the potential impact.

"Although recent commodity prices have been down due to the global recession, there was a period of superior profits and cash flow for mining and metals companies that ended just last year when the financial markets collapsed," said Bruce Sprague, tax partner at Ernst & Young in Vancouver. "This historic period of generous commodity prices is what has made mining and metals companies a favoured target of revenue authorities for tax audits and investigations."

With the increased focus on the industry, 72 per cent of global mining and metals companies who participated in Ernst & Young’s Global mining and metals tax survey 2009 reported an increase in controversy with tax authorities. The authorities are increasingly sophisticated in their approach, with new and stricter documentation requirements, and better cross-border information sharing methods.

These improved methods are significant considering the report also revealed that 92 per cent of the mining and metals companies surveyed have cross-border intercompany transactions. But while the commercial and operational aspects of mining and metals companies are run globally, the tax function still tends to be run on a national basis.

The report also reveals that global climate change is a key issue tax executives need to deal with in the intermediate and long term as governments move to introduce carbon emissions schemes, which are likely to have a direct impact on the profitability of the mining and metals sector.

Tax executives in the industry do appear to recognize the significance of emerging climate change legislation and related greenhouse gas regulation. More than 40 per cent of survey respondents said that this was something that they should consider in the future.