December marks the critical deadline for resolving the Oyu Tolgoi tax dispute. Meanwhile, the Mongolian Tax Authority recently issued a tax bill to Oyu Tolgoi. What is happening between the Government and Oyu Tolgoi?
Core issues
At the heart of the disagreement lies the interpretation of the 2009 Investment Agreement. While the agreement stabilizes specific tax rates for Business entity income tax, Mineral royalty, VAT, customs, and real estate at levels prevailing at the time, it remains ambiguous regarding overall tax environment stability.
This clashing of interpretations led to a series of events:
Both parties have declared a preference for resolving the dispute through negotiation. Rio Tinto hopes to strengthen its relationship with the government, while Mongolia aims to secure its rightful tax revenue. However, the counterclaim complicates the situation, and the arbitrator's eventual decision holds significant weight. A ruling in favor of Oyu Tolgoi could nullify the disputed bills, impacting government finances and public sentiment.
Furthermore, during the COVID-19 pandemic, the Mongolian government disbursed ₮1 trillion in total, or ₮300,000 to every citizen from its shared bank account with Oyu Tolgoi. Additionally, with upcoming parliamentary elections on the horizon, the resolution of the tax dispute may become intertwined with political considerations. What will happen?
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