draining development.pdf - Khazar University

286 Draining Development?NGO studies of the extractive industries in many countries. For example,in Zambia, Christian Aid has stated that “in his budget speech in February2006, the minister of finance estimated that the government waslikely to receive less than US$11 million from royalty payments in 2006:that’s 0.1 per cent of the value of production in 2005” (Christian Aid2007, 24). Christian Aid believes that this is in no small part caused bytransfer mispricing, which has an impact, in this case, on both royaltypayments and declared taxable profits. This is unsurprising. The InvestmentAct 1993 of Zambia, like its predecessor, the 1991 Investment Act,does not address the issue of transfer pricing (Mwenda 1999). Nor, itseems, do many of the mineral development agreements that have beennegotiated in Zambia. This is a situation that may have been addressed byamendments in the Zambian Income Tax Act, passed by parliament inApril 2008, which stipulated that royalties are to be calculated based onthe average monthly cash price on the London Metal Exchange, MetalBulletin, or any other metals exchange as agreed with the government(Open Society Institute et al. 2009). The impact may be limited, however:most Zambian mineral development agreements have stability clausesexempting them from the effects of any changes in tax law for up to 20years (Christian Aid 2007).In the logging sector in the Democratic Republic of Congo, Greenpeacenotes as follows:Internal Danzer Group documents show in great detail the price fixingarrangements between the Group’s Swiss-based trading arm InterholcoAG and the parent firm’s logging subsidiaries in the DRC and the Republicof the Congo. The DRC-based Siforco sells its wood to Interholco at anofficial price below the true market value of the wood. The shortfall ismade up through unofficial payments into offshore bank accounts inEurope. (Greenpeace 2008, 3)A review undertaken for this report found no evidence that issuesrelated to transfer pricing were addressed in five mineral developmentagreements signed from 1994 to 2007 between the government of Tanzaniaand companies mining gold in Tanzania. Royalty rates were fundamentalto anticipated government revenues from royalties and, ultimately,from profits in each case, but on no occasion was the basisspecified for setting the price of exports. The tax base on which royalties