Earlier this year SOMO and Oyu Tolgoi Watch (OT Watch) published the report ‘Mining taxes’. The publication reveals how Canada and Mongolia missed out on nearly US$ 700 million worth of tax income due to tax minimisation efforts by the mining company Rio Tinto and its subsidiary Turquoise Hill Resources.

Mining taxes

Rio Tinto’s tax schemes lead to nearly $700 million tax revenue losses for Canada and Mongolia

In an official statement, Rio Tinto denied the allegations and claimed that the company acted in line with the law and its agreements with the Mongolian government. Rio Tinto stated that the revenues from the Oyu Tolgoi mine were taxed in a fair way. This is view is too short sighted or as the editorial staff of the Toronto Star expressed it:

“What gets lost in that chain of logic, of course, is the greater public good. As corporations work all the tax angles, ordinary taxpayers in both rich and less-rich countries get stuck with a bigger bill from their governments, while the governments themselves scramble to find the revenue they need to pay for all kinds of services.”

“It contributes mightily to the growing gulf between the wealthy few and the struggling many. And it feeds the paradox of private wealth amid public squalor.”

Swiss corruption investigation focusses on former Minister of Finance

The report also refers to the doubtful role of the Mongolian government and its capacity to act in the interest of the Mongolian people. The former Mongolian Minister of Finance, Bayartsogt, was one of the main actors involved in the investment negotiations for the Oyu Tolgoi mine. The ‘Offshore-leaks’ revealed that Bayartsogt possessed US$ 1 million in an undisclosed Swiss bank account that was kept out of sight from the Mongolian tax authorities. This of course raises the question whether Bayartsogt is the appropriate person to negotiate on behalf of the Mongolian state and its people. Reuters revealed this month that the Swiss Justice Department is conducting a criminal investigation into this matter.

Mongolian government demands US$ 155 million

Recently, the Mongolian government presented Rio Tinto and its subsidiary Turquoise Hill Resources with an additional tax bill of US$ 155 million. This is still beneath the losses calculated in the publication, which amounts to US$ 230 million. It’s doubtful whether the Mongolian state will see any of the US$ 155 million or as the Canadian journalist Gabriel Friedman of the ‘Financial Post’ commented: “If the past is any indication, Mongolia is unlikely to collect $155 million in taxes”.

Dutch parliament asking questions

SOMO’s publication and the media attention it generated did not go unnoticed in Dutch politics. Two parliament members, Leijten from the SP (socialist party) and Snels from Groenlinks (green left party), interrogated the State Secretary for Finance, Menno Snel, concerning the role of The Netherlands as a tax haven in this case.

Given these interesting developments, it’s very unlikely we have heard the last of it. SOMO and OT Watch will keep a close eye on what’s to come.