Mining Agreements In Developing Countries‐Issues Of Finance And Taxation

This article continues a Forum series on recent trends in mining contracts between host countries and foreign investors begun in the April 1977 issue. Based on intensive research carried out for the preparation of a book on Mining Ventures in Developing Countries, published recently in the Federal Republic of Germany, the authors discuss sources of finance, institutions, exchange controls and special accounts, royalties, income taxation, and equity participation. They conclude that taxation is most likely to remain the principal source of income; equity participation should be evaluated carefully as it does not automatically guarantee maximum benefits. The combination of taxes and royalties provide a steady flow of income. An increase of the total tax burden beyond a certain percentage may be counterproductive for the host country, as it encourages the investor to look for less controllable means of shifting profits or discourages investment for exploration and development.