By Elena Fehrbach
The Government of Mongolia has issued new Resolutions Nos. 88 and 89 on the definition and calculation of mineral royalties.
Basis for the royalty calculation and general terms:
- The royalties on coal exports will be based on the export sale’s contract price of the coal mine owner. The previous royalty was based on the buying Chinese market price.
- The mineral royalties shall be paid within 21 days after the commodities sale’s completion. In the previous version of the regulation, the royalty was supposed to be paid within the next quarter from the sales date.
Government Resolution No. 88 is effective as of 21 March, 2014. According to the methodology on royalty imposition, specifically designed guidelines should be followed on calculation and payment of royalties:
Guideline on calculation of the mineral royalty rate and payment procedure
The document provides detailed guidelines on determining the sales value of specific commodities with some exceptions. For instance, the guidelines specify procedures on determining sales value for exported commodities with the exception of coal products, domestically sold mineral products, silver and gold sold to the Central Bank and its accredited banks.
The document also specifies payment and reporting deadlines. The royalty on gold and silver sold to the Central Bank of Mongolia and its accredited banks should be withheld on source by the Central Bank or its accredited banks and transferred to the State budget within 10 days after payment has been received. Royalties on the other minerals should be paid by the seller within 21 days after the sales of commodities have been completed.
Guideline on definition of the sales value of coal sold to foreign markets as a basis for the royalty calculation
This guideline has been adopted in accordance with article 47.2.3 of the Minerals Law. The article says, “In case the market rate of the commodities sold in domestic or foreign markets cannot be determined, sales value as reported by the seller should be used as a basis for the royalty calculation.”
The guideline will be used to determine sales value for the royalty estimation for coal products that are sold in foreign markets when the market rate for such products cannot be effectively determined. The document provides two methods for the determination of the sales value: Contract Value Method according to the Article 17 of the Customs Law and the Indirect (Benchmark) Method according to the Article 48 of the Tax Law. The Indirect Method is used when the contract value is +/- 10 percent compared to the products that were exported through the same border during the same period taking into account the same classification, standard and qualities.
The guideline also includes requirements on coal export contracts’ content, frequency of coal laboratory tests and reporting compliance.
Government Resolution No. 89 is effective as of 1 April, 2014 and provides the commodities market rates sources to be applied for the royalty calculation. The current edition of this resolution provides updates and amendments on the sources of rates. The previous version of the Resolution has been adopted in 2007. The amendments on the new sources of rates include:
- Molybdenum: Source of rates – London Metal Exchange.
- Coal: Coal export contract prices of coal mine owners. This amendment is effective until 1 January 2015.
- Coal: China’s coal market rate source. This amendment will be effective from 1 January, 2015. China’s coal market rate source should be used when the contract price of export coal is lower than the benchmark price, according to the Article 48.1 of the Tax Law. Before the resolution update, the coal market rate source was only based on China’s market rate information.
- Ammonium Perrhenate: Source of rate found here.
- Wolfram: Source of rate found here.