OTTAWA/ULANBAATAAR/AMSTERDAM – New report shows how Rio Tinto, and its Canadian subsidiary Turquoise Hill Resources, used mailbox companies in two tax havens, Luxembourg and the Netherlands, to avoid nearly $470 million in Canadian taxes from one mine.
The report, by the Dutch Centre for Research on Multinational Corporations (SOMO) and Oyu Tolgoi Watch (Mongolia) exposes tax schemes related to one of the world’s largest copper and gold mines, the Oyu Tolgoi mine, located in southern Mongolia. The report also shows how an abusive investment agreement for the mine resulted in a $230 million tax revenue loss for Mongolia, which the Mongolian government is actively trying to recover.
“This is a textbook case of treaty shopping,” says SOMO researcher Vincent Kiezebrink. “Instead of providing finance for the Oyu Tolgoi mine from Canada, where its owner is registered, they shifted the profits to a subsidiary in Luxembourg called Movele, which manages billion dollar loans but has zero employees.”
The mailbox subsidiary in Luxembourg enjoyed the low tax rate of 4.19%, amounting to US$89 million in taxes, $470 less than they would have paid in Canada. The company reports that Canadian authorities approved the arrangement.
“This is an astonishing subsidy from Canadian taxpayers,” said Jamie Kneen, Communications and Outreach Coordinator for MiningWatch Canada. “The public needs to know how and why this approval was granted.”
Mongolia is a poor country and Canada development aid to Mongolia is about $1million per year. “It makes no sense for Canada to be sending aid at the same time as we are facilitating the hemorrhaging of huge amounts of money from the mining sector,” says David Bruer, spokesperson for Inter Pares.
Dennis Howlett from Canadians for TaxFairness adds, “The Canadian government needs to review its international treaties and introduce legal requirements to prevent abusive practices, and this report clearly lays out recommendations for how they can do that.”
The organizations involved are calling for action by the governments of Mongolia, Luxembourg, Canada, the Netherlands, and Rio Tinto’s home state, Australia.