August 08, 2004 | By Keith Martin in Washington, DC

PERU imposed a new mining tax in early June.

The rate is 1 to 3% of gross sales. It is 1% for companies with gross sales of less than $60 million. Companies with gross sales of more than $120 million pay 3%. Companies in between pay 2%.

Some of the largest mining companies operating in the country have tax stability contracts with the government and will not be affected by the new tax. Share prices for mining stocks fell 5% in value on
the Lima stock exchange immediately after enactment of the tax.

The government wrote the law as requiring “royalty” payments to the government — rather than as a tax. The use of the word royalty raises questions whether US companies will be able to claim amounts paid as a foreign tax credit in the United States. Such credits cannot be claimed for payments for which the payor receives a specific economic benefit from the government.