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Mongolia Targets the Transfer Pricing of Mining Companies

26th April 2022

Mining companies, consider yourselves warned: The Mongolian government will be scrutinizing your transfer pricing, aggressively looking for opportunities to issue adjustments. Mining drives the Mongolian economy and makes up about 30% of industry, and yet it isn’t delivering significant tax revenue. So, since 2015, the Mongolian government has been working to change that by closing the tax gap. Last year, the country issued its first transfer pricing assessment to a mining company, which included a $225 million tax bill and a denial of $1.5 billion in carryforward losses, according to an OECD case study. So, you might say, the country is a little motivated.  

What can mining companies do? All MNEs should focus on three things: Documentation. Documentation. Documentation. Prepare contemporaneous and robust master and local files and of course, country-by-country reports. Show where value is created and which entities are contributing functions, assets, and risks. Always have supporting documentation to prove arm’s length results. And expect that your documentation will be reviewed. Mongolia’s tax authority has been working with the OECD to implement new audit procedures—take the hint, because judging from the $225 million it just collected, it’s off to a good start.