There are ambiguities in the current laws governing the calculation of royalties in Mongolia, resulting in a system that differs significantly from international good practice. The Ministry of Finance (MoF) and Mongolian Tax Authority (MTA)’s interpretation imposes a royalty on all elements contained in the main ore, concentrate or product exported, even those that would be considered a waste product in international practice.  For instance, copper concentrate sales are subjected to a royalty payment on copper as well as on other elements present that would be considered worthless in international practice (penalty or minor elements).  By contrast, the more common international practice is to calculate royalties based on the amount of the primary element after smelting plus the amount of recoverable, profitable elements (“bonuses” such as gold) less the toxic elements (“penalty” such as iron).  Often in international jurisdictions, the costs of smelting and purification are also deducted from the taxable amount, but this is not the case in Mongolia.
 
The Ministry of Mining and Heavy Industry (MMHI) is aware of the burden these conflicting interpretations imposes on companies. Therefore, the MMHI is working with the MoF, MTA, MRPAM, Mongolian Customs Office, professional associations, and businesses to review the current legal framework relating to royalties on minor elements. AMEP 2 supports the MMHI by identifying an appropriate expert to conduct a scoping study of international good practice in this area and a comparison with Mongolia’s current law and practice, leading to recommendations for a revised guideline and methodology. In addition, AMEP 2 will connect Mongolia’s Ministry of Finance officials with counterparts in Australian state government departments for online discussions about policies and laws relating to royalties and how these are implemented in their jurisdictions.

Update on 26 July 2021. All reports and studies on royalty and other activities can be found here: https://www.amep.mn/news-detail/31?lang_id=2