Five years later: Guyana still to implement IMF advice to collect capital gain tax in mining, petroleum industries

Dec 25, 2023 ExxonMobil, News, Oil & Gas

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…VP not bothered by companies selling stake

By Renay Sambach

Kaieteur News – Five years after the International Monetary Fund (IMF) recommended that Guyana impose taxes on capital gains from the transfer of interests in the mining and petroleum sectors, companies operating within the country can still be selling their stakes without facing taxation.

A recent report by Kaieteur News highlighted a Canadian gold company’s announcement of its intent to sell an 11.7% stake in its mining project in Guyana to a United States firm for approximately CDN$22 million. This move comes at a time when the IMF’s recommendations on the taxation of capital gains remain unimplemented.

In its 2019 study titled “Extractive Fiscal Regime Review, Volume Two: Mining Sector,” the IMF addressed the taxation of capital gains arising from interest transfers in the mining and petroleum sectors.

The report discussed the significance of capital gains tax (CGT) application to these transfers and emphasized the inadequacy of taxing rules, particularly for indirect transfers.

The IMF noted that several transactions involving the transfer of mining or petroleum rights have resulted in substantial capital gains. It was highlighted that the existing Production Sharing Agreements (PSA), which currently exempt gains derived from PSA assignments from both income tax and CGT, regardless of the transferee’s affiliation.

The financial institution said that the issue of whether to tax capital gains on the transfer of mining or petroleum rights raises concerns about government revenue timing and potential implications on future revenues. The IMF said that taxation could act as an early revenue source, but it might subsequently reduce future income due to deductions by the transferee against future revenues. Ultimately, the IMF recommends Guyana impose taxes on capital gains from interest transfers to balance these concerns.

Regarding recent developments, G2 Goldfields Inc., a Canadian-based company, disclosed its agreement with AngloGold Ashanti (AGA) to sell an 11.7% stake in its Guyana mining project for CDN$22,050,000. The deal aims to fund exploration activities at G2’s Oko project, subject to customary closing conditions and exchange approvals.

The agreement includes provisions granting AGA pre-emptive and top-up rights for future security issuances by G2. However, the completion of this strategic investment remains contingent upon the execution of definitive documentation, encompassing customary closing conditions such as approval from the TSX Venture Exchange. The subscription is anticipated to conclude in January 2024, subject to fulfilling these conditions.

The sale of shares to AGA will be conducted through a private placement in the United States, following exemptions from registration requirements under the United States Securities Act of 1933 and Canadian securities laws. The shares will be subject to a four-month hold period in accordance with Canadian securities laws.

Dan Noone, CEO of G2, expressed optimism about AGA’s investment, highlighting its potential to support their projects in Guyana. AGA also expressed confidence in G2’s exploration properties, recognizing Guyana as part of the promising Guiana Shield, renowned for its significant gold reserves.

On Thursday, during his weekly press conference Vice President (VP), Bharrat Jagdeo was asked about what Guyana receives when companies sell shares in their mining projects; to which he responded that it is a regular occurrence of companies selling their mining stakes in the context of global business.

He emphasized the significance of these transactions and their adherence to established contracts.

“We are not a stone age country…So now, they may sell it. What we have is the original agreement. The original agreement says for anyone who comes to develop the project, ultimately, they will get x-concessions but they have to be in the corporate tax like in mining, they have to pay corporate tax, and they have pay 8% royalty…” Jagdeo said.

He continued, “So whoever develops the project, have to still give the Government of Guyana their taxes…and pay the royalty from which we get our revenue.”

“So the investor may change. But that’s a normal thing of business, Global Business. So this happens routinely, routinely,” the Vice President added.

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• Guyana, International Monetary Fund (IMF), Mining, petroleum industries, Renay Sambach

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