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Large-Scale Mining - Tax Regime

"Act 19.126 of September 11, 2013 regulates the Large-Scale Mining in Uruguay.

Chapter IV of said Act regulates the tax regime applying to the mining activity.

In the following lines we will consider the main aspects of such regime.

No exemptions for income tax.
The Act expressly establishes the non-applicability of promotion regimes which may imply an exemption of the Corporate Income Tax (IRAE).

In case that the mining project may include an industrialization of the mining product(1), the contract could include the obtainable benefits under the scope of the Investments Act, but only with respect to activities different from the mining or related operations described at section 8.

Creation of a new tax which levies the large-scale mining.
The Act creates a new tax on the large-scale mining, which implies an additional to the "specific IRAE". The new tax will levy the income arising from mining activity, obtainable by the concessionaire with authorization to exploit a large-scale mining project.

Tax calculation.
In order to determine the tax amount, it is necessary to determine:

  1. the "mining operational profit" ("Ingreso operacional minero") (MOP), as the resulting value after to deduct, from the gross selling of mining products, the devolutions, discounts and other similar concepts in accordance with the local market practices.

    The MOP cannot be lower of the mining product´s standard price (determined by the Government taking into account international prices and other objective parameters), multiplied by the number of units sold.

    When the mining product constitutes a supply for an industrial process, the MOP will be determined by the valuation of the units which are a part of the cost of the industrialized product sold, considering the standard price at the moment of the sell.

  2. then, the "mining operational gross income" ("renta bruta operacional minera") (MOGI), which results of subtract to the MOP the production costs calculated following the IRAE regulations.

  3. after that, the "mining operational net income" ("renta neta operacional minera") (MONI), deducting from the gross income (MOGI) certain expenses and loses in case that such values are connected to the performance of the mining activities. The deductions should be made taking into consideration the IRAE rules.

    The mining royalty payable by the concessionaire to the State cannot be deducted, nor the expenses derived from the rental, use, assignment of use or the acquisition of trademarks, patents, industrial models, and information concerning scientific/industrial/commercial experiences.

    The costs related to the exploratory drilling, exploration and environmental studies directly connected with the mining project could be amortized in a five years period to be counted from the fiscal year in which the production begins.

  4. finally, the "mining operational margin" (MOM), that is the resulting quotient after divide the net income (MONI) by the mining profit (MOP).

    Determined the above-mentioned variables, the IRAE´s additional rate will be the result to subtract 0,25 (zero point twenty five) the 90% (ninety percent) of the MOM in the fiscal year, expressed in percentage terms.

    Progressive rate = (MOM x 0.90 – 0.25) x 100

    The rate is applied on the net income (MONI) of the fiscal year.

    In case that the MOM will be higher than 0.70 (zero point seventy), such value will be considered as a maximum in order to determine the progressive rate.

    If the rate results negative, it will be null.

Tax calculation in case of joint enterprises.

The taxpayers who configures an hypothesis of joint enterprises, according to the definition established in the Act, must calculate the tax each one independently.

Possibility to impute the payment of the mining royalty to cancel the tax obligation.

According to the Act, the amounts paid for the mining royalty in the fiscal year could be imputed to the IRAE´s additional in that fiscal year.

The excess will not be returned.

Deductions not-permitted in order to determine the taxable income.

For the determination of the taxable income (net income), there is no possibility to deduct the IRAE, nor the IRAE´s additional on the income arising from the large-scale mining, nor the Capital Tax.

Advanced payments.

The Government could request advanced payments for the additional, disregarding the mining operational fiscal result of the last fiscal year, or if the fiscal year is the first one of the taxable activities.

Notwithstanding, there are exempted of said advanced payments those enterprises who can justify an estimated inexistence of operational mining profits at the end of the fiscal year.

Transfer pricing.

The Act establishes the application of the transfer pricing regime with respect to the different hypothesis of related companies provided by the IRAE regulations, for all the operatives performed with residents.

Additional to the Mining Royalty.

When the contract signed between the Government and the owner of the mining project includes a tax-stability clause or dispute resolution mechanisms, it will be applied and additional to the mining royalty.

Such additional is 2% (two percent), and will be applied on the same base for calculation of the mining royalty, along the period established by the parties (in case of the existence of a tax-stability clause) or the legal effect of the contract (in case of the existence of dispute resolution mechanisms).