OECD and IGF guidelines in addressing BEPS risks when pricing minerals

26 October 2023
In the mining industry, Base Erosion and Profit Shifting (BEPS) represents a challenging concept to identify and, implicitly, eliminate due to the limited capabilities of tax authorities in developing countries rich in natural resources.

Because the mining industry has a significant potential to contribute to state budgets, the Centre for Tax Policy and Administration of the Organisation for Economic Cooperation and Development (OECD) and The Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) have established a collaboration (the OECD - IGF initiative), with the purpose of combining tax expertise and industry-specific knowledge, to develop guidelines for governments, and tackle this issue.

The accurate determination of prices between affiliated entities for mineral products is an equally critical and intricate topic for governments, as a multitude of factors must be taken into consideration, e.g. quality adjustments, limited publicly available information in respect of prices, the stage of mineral beneficiation, etc.  

Considering that Romania is rich in mineral resources (oil, natural gas, gold, silver, ferrous and non-ferrous metals) and that a significant number of Romanian and foreign companies are active in this sector, there is great potential to derive revenues to the state budget from this industry. Hence, these guidelines published by the OECD and IGF apply to these companies as well.

The OECD and IGF published two toolkits, to which public comments were sought, i.e. „Determining the Price of Minerals: A Transfer Pricing Framework” and „Determining the Price of Minerals: A Transfer Pricing Framework, Schedule A: Bauxite”. The first toolkit includes guidelines regarding the accurate delineation of the transaction and on determining the arm’s length price for the sale of minerals. The second toolkit provides guidance on identifying the significant economic factors that have an influence on mineral pricing and illustrates this guidance for the case of bauxite.

The arm’s length principle is a standard applied by multinational companies and tax administrations for evaluating the suitability of related party transactions. The difficulties encountered when accurately computing transfer prices (e.g. gathering considerable amounts of information) are deepened by the characteristics of the mining sector, e.g. limited publicly available information on the mining industry and related pricing.

The mining activity involves exploring for, developing, and extracting minerals and metals, and in some cases, non-mineral crystals (e.g. opals) and organic materials (e.g. amber). In a nutshell, mining involves the extraction and sale of naturally occurring and non-renewable resources found in the Earth’s crust. However, modern groups can also be involved in midstream logistical and selling activities or downstream processing of minerals and metals.

The transfer pricing risks vary depending on the stage of the mining value chain.  

As the exploration phase of mining involves the use of geologists, engineers, and specialised equipment, transfer pricing risks may arise where there is an intragroup provision of technical services or intragroup rental of specialised equipment.

Several risks can arise during the development phase, the most notable of which is the related party financing risk, which can take the form of related party debt, derivative instruments, and other unconventional financing structures (e.g. metal streaming arrangements). Also, there can be the case of intragroup services (technical services, management services) or the sale/rental of assets.

The production phase is marked by the same risks as the development phase, to which the risks associated with the sale and marketing of minerals are added (usually involving a non-resident related party).

In the case of the processing, refining, and melting stage, the transfer pricing risks can arise as a result of excessive treatment and refining charges concerning related parties, but also as a result of interposed sales and marketing-related parties.

Further, the toolkit explores the applicability of the Comparable Uncontrolled Price (CUP) method and also includes considerations regarding the practical application of comparability adjustments, such as adjustments concerning the physical characteristics of the mineral (e.g. downward adjustments to account for impurities), the delivery terms, etc.

The CUP method is generally considered suitable for commodity transactions involving minerals between related parties. In this respect, quoted prices can be used for the analysis. There are specific factors to be considered in comparing the controlled transaction and the quoted price, as follows: physical characteristics and quality of the goods, volumes traded, duration of the agreement, delivery schedule and terms, and other factors such as transportation, insurance, foreign exchange, and payment terms.

Within the analysis, the following factors should be also considered: supply and demand dynamics (in the context of the existence or not of a transparent price listed on a stock exchange, as in the case of gold and silver), structure of the buyer and seller entities, the production history and market reputation of the production mine, the sovereign risk associated with the location of the mine, etc.

For example, in the particular case of bauxite, bauxite price indices (such as CBIX) provide essential information for assessing the price of this raw material. Through a calculation tool, CBIX allows users to enter the physical characteristics of bauxite (e.g. content of alumina and silica) and determine the indicative market price for a given day.


The unique features of the mining industry directly affect transfer prices for minerals and, therefore, product characteristics need to be considered, together with adjustments to account for these characteristics, as well as price indices as a starting point, where available.

To tackle the challenges of establishing arm’s length prices in this industry, governments can publish taxpayer guidance, enact safe harbour rules or can go forward and impose administrative pricing (i.e. the government determines the value of oil or gas, for example). Some countries implemented the sixth method approach to determine arm’s length prices (in a nutshell, an adjusted quoted price). In the case of Romania, such additional guidance is needed for the analysis of intragroup transactions specific to this industry to increase fiscal predictability.