Duties, royalties and taxesDuties, royalties and taxes payable by private parties
What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit-based?
The total government share in an MPSA shall be the excise tax on mineral products as provided under the National Internal Revenue Code (NIRC), as amended.
The share of the government in co-production and joint venture agreements shall be negotiated by the government and the contractor taking into consideration the following:
- capital investment in the project;
- risks involved;
- contribution of the project to the economy; and
- other factors that will provide for a fair and equitable sharing between the parties.
The government shall also be entitled to compensation for its other contributions, which shall be agreed upon by the parties and shall consist of, among other things, the contractor’s income tax, excise tax, special allowance, withholding tax due from the contractor’s foreign stockholders arising from dividend or interest payments to the said foreign stockholders in case of a foreign national, and all such other taxes, duties and fees as provided for in existing laws.
The government share in an FTAA shall consist of the basic government share and the additional government share. The basic government share is the minimum share that the government is entitled to receive consisting of the contractor’s income tax, customs duties and fees on imported capital equipment, value-added tax on imported tax and services, withholding tax on interest payments on foreign loans, withholding tax on dividends to foreign stockholders, documentary stamps taxes, capital gains tax, excise tax on minerals, royalties for mineral reservations and to indigenous peoples (IPs), local business tax, real property tax, community tax, occupation fees, registration and permit fees and all other national and local government taxes, royalties and fees. It shall be negotiated by the government and the contractor taking into consideration the capital investment of the project, risks involved, contribution of the project to the economy, the technical complexity of the project and other factors that will provide for a fair and equitable sharing between the parties. When the basic government share is less than fifty per cent of the net mining revenue, FTAA contractors are obliged to pay an additional government share consisting of the difference between the basic government share and 50 per cent of the net mining revenue.
The entitlement of the government to its share in the FTAA shall only commence after the contractor has been given an opportunity to recover the expenses incurred during the pre-operating period. The recovery period pertains to either a maximum of five years or at the date when the aggregate of the net cash flows from the mining operations is equal to the aggregate of its pre-operating expenses, reckoned from the date of commencement of commercial production, whichever comes first.
After the lapse of the income tax holiday that is available under existing laws, the contractor shall pay income tax as provided in the NIRC. The contractor is also liable for excise tax on mineral products and value-added tax under the NIRC and customs duties under the Tariff and Customs Code of the Philippines. Last, the contractor is also liable for local business taxes and real property tax under the Local Government Code.
The contractor is also liable for an annual occupation fee and mine waste and tailing fees. The amount of the occupation fee to be paid will depend on the size of the area occupied by the contractor.
For MAs, FTAAs, or mining permits covering ancestral lands, the contractor shall pay royalties to the concerned ICC based on gross output. Such payment shall depend on the agreement between the ICC and the contractor.
For MAs and FTAAs over areas covered by small-scale miners, the contractor shall pay royalties to the concerned small-scale miners upon utilisation of the minerals. Such payment shall depend on the agreement between the small-scale miners and the contractor.
Mining operations within mineral reservations are subject to a royalty paid to the MGB that shall not be less than 5 per cent of the market value of the gross output of the minerals or mineral products extracted or produced from the mineral reservations exclusive of all other taxes.Tax advantages and incentives
What tax advantages and incentives are available to private parties carrying on mining activities?
The Mining Act provides that contractors in mineral agreements and FTAAs shall be entitled to fiscal and non-fiscal incentives as provided in the Omnibus Investments Code. It mandates that mining activities always be included in the Investment Priorities Plan that is prepared annually by the Board of Investments. Under the 2017-19 Investment Priorities Plan, approved on 28 February 2017, mining projects are limited to capital equipment incentives.
The Mining Act provides for the following incentives:
- pollution control devices acquired, constructed or installed by contractors will not be considered as improvements on the land or building where they are placed, and will not be subject to property tax and other taxes or assessments;
- a net operating loss without the benefit of incentives incurred in any of the first 10 years of operations may be carried over as a deduction from taxable income for the next five years immediately following the year of such loss. The entire amount of the loss will be carried over to the first of the five taxable years following the loss, and any portion of such loss that exceeds the taxable income of such first year will be deducted in a like manner from the taxable income of the next remaining four years;
- fixed assets may be depreciated as follows:
- to the extent of not more than twice as fast as the normal rate of depreciation or depreciated at normal rate of depreciation if the expected life is 10 years or less; or
- depreciated over any number of years between five years and the expected life if the latter is more than 10 years, and the depreciation thereon allowed as a deduction from taxable income; and
- the contractor may opt to deduct exploration and development expenditures accumulated at cost as of the date of the prospecting or exploration and development expenditures paid or incurred during the taxable year, up to 25 per cent of the net income from mining operations. The actual exploration and development expenditures minus the 25 per cent net income from mining shall be carried forward to the succeeding years until fully deducted.
The Mining Act also provides that the contractor will be entitled to the basic rights and guarantees provided in the Philippine Constitution and such other rights recognised by the government, which include the following:
- repatriation of investments, or the right to repatriate the entire proceeds of the liquidation of the foreign investment in the currency in which the investment was originally made and at the exchange rate prevailing at the time of repatriation;
- remittance of earnings, or the right to remit earnings from the investment in the currency in which the foreign investment was originally made and at the exchange rate prevailing at the time of remittance;
- foreign loans and contracts, or the right to remit at the exchange rate prevailing at the time of remittance such sums as may be necessary to meet the payments of interest and principal on foreign loans and foreign obligations arising from financial or technical assistance contracts;
- freedom from expropriation, or the right to be free from expropriation by the government of the property represented by investments or loans, or of the property of the enterprise except for public use or in the interest of national welfare or defence and upon payment of just compensation. In such cases, foreign investors or enterprises will have the right to remit sums received as compensation for the expropriated property in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance;
- requisition of investment, or the right to be free from requisition of the property represented by the investment or of the property of the enterprises except in cases of war or national emergency and only for the duration thereof. Just compensation will be determined and paid either at the time or immediately after cessation of the state of war or national emergency. Payments received as compensation for the requisitioned property may be remitted in the currency in which the investments were originally made and at the exchange rate prevailing at the time of remittance; and
- confidentiality, where any confidential information supplied by the contractor pursuant to the Mining Act and its IRR will be treated as such by the DENR and the government, and during the term of the project to which it relates.
Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force?
At present, there are no tax stabilisation agreements in force in the Philippines.Carried interest
Is the government entitled to a carried interest, or a free carried interest in mining projects?
The Mining Act does not provide that the government is entitled to a carried interest or a free carried interest in mining projects. Nevertheless, the law appears to limit the supposed government share to the usual taxes, royalties and fees.Transfer taxes and capital gains
Are there any transfer taxes or capital gains imposed regarding the transfer of licences?
Gains realised on a transfer of licence are generally subject to income tax.Distinction between domestic parties and foreign parties
Is there any distinction between the duties, royalties and taxes payable by domestic parties and those payable by foreign parties?
The law makes no distinction between the duties, royalties and taxes payable by domestic and foreign parties whether to the government or the indigenous communities in the area.