One week before the Forum on mining royalties, the government of
Quebec released a consultation document (available in French
only) to feed the discussions that will take place during this
The government sets out in this document its intention to
increase the royalty rate applicable in Quebec. In particular, it
deplores the fact that half of the mining companies operating in
Quebec did not pay royalties in 2011. In addition, in the
government's view, the society has not benefited adequately
from the exploitation of mineral resources, in light of the high
commodity prices since the early 2000s.
The reform of the mining royalty regime that the government is
committed to implement will be guided by two principles:
Each company operating a mine in Quebec shall pay a minimum
royalty to the government;
All Quebecers shall get a greater share of the profits of
mining companies when they are high.
Moreover, the government's decision as to the new mining tax
regime will take into account the following tax policy
Adequate sharing of the rent: The government
intends to collect a portion of the excess profits of mining
companies when the commodity prices are very high.
Optimal tax base: The chosen tax base shall
raise sufficient revenues for the government, encourage the influx
of additional capital and be self-sufficient in the absence of
Economic efficiency: The new regime shall
generate a stable cash inflow to the government and be fair to the
mining companies. In this regard, companies generating the same
amount of economic rent (i.e. profits beyond a threshold of
acceptable performance based on risk) should be subject to the same
tax rate. In addition, royalties paid by mining companies should be
based on their operating results, regardless of the level of
Transparency and stability: The new regime
shall allow mining companies to predictably assess the long-term
tax liability associated with their activities. It shall also be
transparent to the citizens.
Administrative efficiency: The new regime
shall be simple to administer, both for mining companies and the
Competitiveness: The new regime shall allow
mining companies operating in Quebec to be competitive on the
global stage in order to maintain their activities and attract
Based on the foregoing, the government favours the
implementation of a hybrid system that would ensure minimum royalty
revenues as well as an appropriate sharing of the economic rent.
This regime would include the following two components:
Guaranteed minimum revenues:Ad
valorem royalties representing, for example, 5% of the gross
value of the annual production of mining companies would be levied.
Royalties could be modulated by adjusting the rate in respect of
value added products or by setting the tax base to avoid penalizing
Sharing of the economic rent: Two options are
being contemplated by the government to ensure that mining
companies pay more royalties when they are highly profitable.
One approach would be to introduce a mining tax based on profits
that would have the same base as the current regime, but the
marginal rate would increase gradually once a certain level of
profitability is reached. Thus, the higher the profitability of a
mining company is, the higher the marginal tax rate would be.
Alternatively, it is proposed to establish a royalty regime
based on economic rent. Rent would be calculated by subtracting
from the mining profits a deduction corresponding to a reasonable
return on investment. The amount thus obtained would be reduced by
the ad valorem royalties paid by the company, then a tax
rate of 30% would be applied to these "excess
Actors in the mining industry are invited to share their
comments and suggest changes to the proposed regime by
participating in the forum on March 15, 2013 or by submitting a
brief to the government.
here for a more detailed review of the consultation
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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