Breakdown of New Mining FeesWed, 10/21/2015 - 09:48
In November 2013, the Mexican Senate approved a tax reform bill passed by the Chamber of Deputies. After being signed into law by President Enrique Peña Nieto, this tax reform became effective as of January 1, 2014. The new Federal Rights Law has widely been interpreted as having brought the most important legal and the fiscal changes to the Mexican mining sector for decades. Although much of the text has similar content to the previous version of the law, several important changes were enshrined. The most discussed change was the introduction of a new special mining fee, broken down below.
SPECIFIC CHANGES TO MINING FEES
• The holders of mining concessions now face the annual payment of a 7.5% fee on their EBITDA. This does not include any fees related to depreciation, interest, or annual inflation. The deduction of exploration expenses is permitted, but only through a 10% amortization of said expenses. This means that the deduction of exploration expenses takes place over a ten-year period, instead of being fully deductible from the first fiscal year, as before.
• An additional 0.5% now applies for the sale of gold, silver, and platinum to be paid annually. Concession holders must also ensure separate accounting is kept for the sale of these precious metals.
• An incentive has been provided to concession holders with an annual gross income from the sale of minerals lower than MX$50 million (US$3.3 million). This consists of allowing these companies to credit the new special mining fee against their income tax for that same year.
• In order to ensure that mining properties do not lie idle, the holders of mining concessions who do not carry out any exploration or active production work may face an additional fee. If no such activities take place at a concession for any two consecutive years in the first 11 years of the term of the concession, the duties payable per hectare may be raised by 50%. The current duties were set at MX$124.74 per hectare in 2013.
• Should this inactivity take place for two consecutive years after 12 or more years of the term of the concession have passed, the duties payable per hectare will be raised by 100%.
FUND FOR THE REGIONAL DEVELOPMENT OF MINING MUNICIPALITIES
Another aspect that has come under much scrutiny is the fact that the revenue collected from these fees is destined to be used for the improvement of communities in the vicinity of mine sites. These fees will go toward a fund, officially named the Fund for the Regional Development of Mining Municipalities, which shall make investments that help social, environmental, and urban developments in these communities. The terms of the fund indicate that it may be used for the construction and remodeling of schools, the maintenance of local roads, the installation and maintenance of public lighting, the building of waste disposal sites and water treatment plants, the improvement of public sewers and solid waste management, and the bettering of air quality. It may also be destined toward the improvement of urban transportation, including the building of suburban train lines, subways, or other equivalent public transportation systems. Finally, part of it will also be used to preserve natural areas, through activities such as reforestation or rehabilitation of rivers and other waterways.
In response, a number of law firms have been consulted by mining companies about filing an amparo to challenge the constitutionality of the fees. Laura Diaz Nieves, Partner at DBR Abogados, says that “each company must decide whether or not it wants to initiate proceedings to appeal the royalty. I am confident that companies filing an appeal could win, but the appeal has to be filed by an individual company; it cannot be a collective action and it would not apply to companies that did not take the same action.”