Commodity Trading: Understanding the tax-related challenges for home and host countries

Numerous non-governmental organizations, academic institutions, international organisations, and other government agencies, have begun studies and initiatives to combat Illicit Financial Flows (IFFs), specifically corruption, and improve the transparency of commodity trading.

However, one aspect of commodity trading that is less well understood is mineral sales between private mining companies (as distinct as from state owned mining companies) and commodity traders, and any potential tax, or financial risks these pose for host country governments. These risks may differ depending on the type of commodity trader. 

IISD studied how commodity traders (i.e. independent traders, integrated miners, and refineries) are involved in buying and selling mineral production from private mining companies in resource-rich developing countries. Based on the research, IISD identified any tax and financial risks associated with the transactions that have the potential to undermine government revenue collection in the host country.  This helped identify what measures home countries can also contribute to ensuring developing host countries can achieve their revenue collection objectives.  

The study was designed to take in the full range of tax risks posed by mineral trading, and thus is not limited to specific mineral products. It focused on traders originating from, or based in, the major commodity trading hubs, for example, Switzerland, Singapore, London (United Kingdom), and Dubai (United Arab Emirates) (“home countries”).  

The study is now complete and available in our library. This project is related to our work on Base Erosion and Profit Shifting (BEPS) in Mining being conducted by the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) in association with the OECD.