Sherpa et al vs Glencore International AG

Date filed

12 April 2011

Keywords

Taxation

Countries of harm

Zambia

Current status

No resolution

Sector

Mining

NCP

NCP Switzerland

Allegations

The complaint against Glencore International AG and First Quantum Mining Ltd. alleges that the companys Zambian subsidiary Mopani Copper Mines Plc. has manipulated its financial accounts in order to evade taxation. Together, Glencore and First Quantum directly or indirectly own 90% of the shares in Mopani Copper Mines.

Mopani is the largest mining corporation operating in Zambia and one of the countrys largest producers of copper and cobalt. Mopani Copper Mines operates within a highly attractive fiscal environment, with a royalty tax rate of 0.6%, a corporate tax rate limited to 25%, exemptions on customs duties, and a stability clause valid for 20 years (starting in 2000). Despite these numerous fiscal incentives and the assumed profitability of its mining operations, Mopani Copper Mines reports no profits, thereby considerably reducing its tax obligations.

A 2009 audit conducted by international accountants at the request of the Zambian authorities concluded that Mopani employs various techniques in order to avoid paying taxes in Zambia. These techniques include overestimation of operating costs, underestimation of production volumes, transfer pricing manipulation and breach of the “Arms Length” principle.

The complainants argue that the tax evading practices of Mopani place parent companies Glencore International and First Quantum Mining in breach of the OECD Guidelines provisions on Taxation and General Policies.

Relevant OECD Guidelines

Outcome

The Swiss and Canadian NCPs agreed that the Swiss NCP would take the lead in handling the complaint. In October 2011, the Swiss NCP concluded its confidential initial assessment and accepted the complaint.

Both parties accepted the NCPs offer to facilitate mediation. The NCP convened the meeting, which was led by an external mediator, in July 2012. According to the complainants, the company rejected the allegations without providing any evidence or new facts that would have supported their view.

The NCP issued a final statement in November 2012. The statement proclaims that following a thorough exchange of information and constructive discussions the parties agreed to disagree on the issues raised in the complaint. The parties further agreed to seek ways to engage in further dialogue.

Although an agreement with the company was reached through mediation, the complainants are disappointed that the agreement did not go further than an agreement to disagree. They feel that the result shows that there is little value in engaging in a dialogue with the companies on these issues. According to the complainants, the company has not complied with its commitment as part of the agreement to respond to a detailed set of questions regarding its tax payments.