Oyu Tolgoi LLC pays up MNT 649 billion Tax Act by Mongolian Tax Authority

Economy
baljmaa@montsame.gov.mn
2021-03-05 15:08:21

Ulaanbaatar /MONTSAME/. After completing an audit of Oyu Tolgoi LLC’s 2016-2018 tax returns, the General Department of Taxation – the tax authority of Mongolia, on December 24, 2020, issued a tax claim for a total of MNT 649.4 billion (approximately US$228 million) that is due to be paid in cash to the Government of Mongolia. 


On February 25, Oyu Tolgoi LLC deposited MNT 229.8 billion to the treasury of the government budget as the first installment to pay for the tax claim. On March 4, the remaining MNT 419.2 billion was paid by Oyu Tolgoi LLC, resulting in full payment for the tax claim by the Mongolian Tax Authority, reports the Ministry of Finance. 


According to the press release issued by the cabinet secretariat on March 5, major violations and breaches identified by the Mongolian Tax Authority’s audit made in 2020 include: 


  • MNT 164.7 billion of tax, penalty and default interests imposed for the default of not withholding tax from the management service payment amounting to MNT 549 billion paid from Oyu Tolgoi LLC to Rio Tinto, 
  • MNT 382.7 billion of tax, penalty and default interests for the default of not fully remitting tax withholding from shareholder loan interests of MNT 1,953.5 billion paid by Oyu Tolgoi LLC to affiliated entities of Turquoise Hill Resources and Rio Tinto, 
  • MNT 46.7 billion of tax, penalty and default interests for the failure to fulfill provisions in Mongolia’s Law on Minerals and the Investment Agreement when calculating royalties relating to Oyu Tolgoi LLC’s products sold for export,
  • The amount of carried-forward tax losses was increased by MNT 395.2 billion through unrealistic exchange differences, 
  • MNT 34.4 billion of tax, penalty and default interests for the violation of not withholding tax from the payments amounting to MNT 134.5 billion for installation, assembly, technical and information technology services and works carried out by foreign companies that are not located in Mongolia, and 
  • MNT 800,000 for failure to pay air pollution fee. 

“The Mongolian Tax Authority also conducted an audit of tax returns filed by Oyu Tolgoi LLC covering the period between 2013-2015 and issued a penalty notice in January 2018 to the company for MNT 377.1 billion of taxes, penalty and default interests.


However, Oyu Tolgoi LLC declined to accept the tax assessment of MNT 359.7 billion and filed a claim to the primary level administrative court of Ulaanbaatar city and initiated an arbitration proceeding at the London Court of International Arbitration,” the press statement reads.


As stated in the government’s press release, “Violations identified in the tax assessment of 2018 are as follows:


  • MNT 176.8 billion of tax, penalty and default interests imposed for the default of not withholding tax from the management service payment amounting to MNT 589.4 billion paid from Oyu Tolgoi LLC to Rio Tinto, 
  • MNT 156.6 billion of tax, penalty and default interests for the default of not fully remitting tax withholding from shareholder loan interests of MNT522.1 billion paid by Oyu Tolgoi LLC to affiliated entities of Turquoise Hill Resources and Rio Tinto, 
  • MNT 24.3 billion of tax, penalty and default interests for the failure to fulfill provisions in Mongolia’s Law on Minerals and the Investment Agreement when calculating royalty relating to Oyu Tolgoi LLC’s products sold for export,
  • The amount of carried-forward tax losses was increased by MNT 402.6 billion through unrealistic exchange differences, and 
  • MNT 2.2 million for failure to pay for air pollution fee.”

“The abovementioned tax assessments concluded by tax audits are made in compliance with tax legislations of Mongolia and Oyu Tolgoi LLC, Rio Tinto and Turquoise Hill Resources have the obligation to pay taxes owe Mongolia accurately, honestly and in full.” 


The government of Mongolia is exerting every possible effort to ensure full compliance with tax legislations of Mongolia and talks are underway with the government consistently urging Oyu Tolgoi LLC and its manager Rio Tinto and shareholder Turquoise Hill to correctly levy taxation on earned income and pay taxes honestly.