June 01, 2005 | By Keith Martin in Washington, DC
PERU will continue to collect new royalties on mining companies after a tribunal held they are constitutional.
The tribunal said in early April that the new law calls for payment of royalties rather than “taxes.”The decision could have implications for US companies with mining operations in Peru, since foreign tax credits can be claimed in the United States only for overseas levies that are “taxes.” What label a Peruvian tribunal chooses is not dispositive in the US.
The royalty rate in this case depends on the annual sales of the company. It is 1% for companies with gross sales of up to $60 million. It is 2% for gross sales between $60 million and $120 million, and 3% above that.
The government said it would continue to honor tax stabilization agreements signed with the government before mid-2004 when the new royalties went into effect. A tax stabilization agreement is a contract between a foreign investor and the government in which the government promises not to change the economics of a project by imposing new taxes, fees or other charges during the term of the agreement. Thus, the royalties only apply to companies that had not signed such agreements before last summer.