Ulaanbaatar /MONTSAME/. On 22 December 2020, Oyu Tolgoi LLC received a Tax Assessment claim for approximately US$228 million from the Mongolian Tax Authority (MTA), relating to an audit of taxes paid by Oyu Tolgoi LLC between 2016 and 2018. The MTA has also sought to reduce Oyu Tolgoi’s carried-forward tax losses by around US$1.5 billion. 

On 11 January 2021, Oyu Tolgoi LLC issued a press release regarding the tax matters, which reads, “Oyu Tolgoi LLC consistently recognized as one of the largest taxpayers in Mongolia. It has paid more than MNT5.8 trillion (approximately US$2.8 billion) in taxes, royalties and fees to the Government of Mongolia since 2010.” 

Oyu Tolgoi LLC, Mongolia's largest copper and gold mining company and a strategic partnership between the Government of Mongolia, Turquoise Hill Resources and Rio Tinto, is a major contributor to the Mongolian economy, with gross in-country spend of over US$11.3 billion, since 2010. 

The company is creating significant value for Mongolia as a large employer in the country, with a workforce of over 12,300 – 94 per cent of whom are Mongolian nationals.

In 2020, the company paid taxes and royalties, of approximately US$290 million, and accommodated some early royalty payments throughout the year to support the Mongolian government’s actions on COVID-19.

The press release continues to emphasize that Oyu Tolgoi LLC pays all taxes and charges required under Mongolian laws and the stabilized tax environment created by the Oyu Tolgoi Investment Agreement (IA), the Underground Development Plan (UDP) and guidance letters from the MTA. “Oyu Tolgoi complies with all applicable international rules and guidelines including the OECD Transfer Pricing Guidelines.”

During this audited period, between 2016 and 2018, Oyu Tolgoi LLC paid approximately US$797 million in taxes, royalties and fees. During that same period, Oyu Tolgoi LLC posted net earnings losses of over US$600 million.

Referring to MTA’s Tax Act claim as well as the seeking of a reduction of Oyu Tolgoi’s carried forward tax losses, the press release further states that “Many of the matters raised by this new Tax Assessment are a continuation of the matters raised by the January 2018 penalty notice covering the period of 2013 to 2015. Those matters have been previously referred to international arbitration by joint agreement between Oyu Tolgoi LLC and the Government of Mongolia in 2020, in compliance with the dispute resolution provisions of the IA and UDP, and in order to resolve and clarify the different interpretations of the tax provisions.” 

Oyu Tolgoi LLC will apply over the coming days to include the new matters from the latest Tax Assessment in the existing international arbitration as the matters are substantially similar and, in some cases, identical.

A spokesperson for Oyu Tolgoi LLC said, “Oyu Tolgoi LLC has a proud record of paying the taxes it owes on time and in full. Investments of the size and scale of Oyu Tolgoi LLC can only be made on the basis of a transparent and predictable tax regime.”

In order to support the country’s response to COVID-19, Rio Tinto and Oyu Tolgoi LLC are, as announced on 1 October 2020, investing US$602,000 - or ~MNT1.7 billion - across Mongolia with a focus on increasing the resilience and response capability of the country.

In addition, Oyu Tolgoi LLC and its employees donated MNT455 million to support the COVID-19 outbreak prevention efforts, including MNT100 million to the GoM through the Mongolian National Mining Association, MNT200 million to the Umnugovi Emergency Committee, and MNT10 million to the Khanbogd Emergency Committee through the Gobi Oyu Development Support Fund. Oyu Tolgoi employees also launched a donation campaign and raised over MNT145 million, which was donated to the Ministry of Health. Employees from 38 contractor companies joined the campaign as #WeAreAllInThisTogether.

Same day, 11 January 2021, Turquoise Hill Resources Company, which focuses on the operation and development of the Oyu Tolgoi copper-gold mine, provided an update on the Tax Arbitration and discussion with the government of Mongolia on the Underground Development Plan and Proposed Class Action. 

Turquoise Hill expressed that it is committed to engaging immediately with the Government of Mongolia and Rio Tinto to address the Underground Development Plan and revisit the sharing of economic benefits arising from the Oyu Tolgoi project in the context of agreeing on a comprehensive financing plan as well as addressing the other issues raised.