Copper, which is simultaneously extracted during the extraction of gold and silver, is not an object of extraction. Therefore, the subsurface user does not have an obligation to pay royalties and mineral extraction tax

As an example, we can cite the case of the application of Yu LLP to challenge the notification of the tax authority regarding the accrual of royalties and mineral extraction tax – 123,393,418 tenge, penalties – 27,370,806 tenge. The reason for the additional charges was the failure of the Partnership to pay a tax for copper, which was mined along with gold and silver. The case has been repeatedly reviewed by various judicial authorities. Based on the results of the retrial, the court of appeal ruled to satisfy the Partnership's application and indicated that, according to the terms of the Contract, the Partnership extracted only gold and silver, and the copper extracted along the way was not an object of extraction, therefore, the Partnership had no obligations to pay royalties and mineral extraction tax. The Court of cassation found these conclusions to be correct. It was established that the Partnership operates on the basis of the contract dated December 14, 2001 No. 830 for the extraction of gold-bearing ores at the Yubileynoye deposit in the Aktobe region, concluded with the Competent Authority of the Republic of Kazakhstan.

At the same time, the mineral reserves at the Yubileynoye deposit were approved by the protocol of the State Commission No. 44 dated July 22, 1996, according to which copper in the composition of gold-bearing ores was classified as other associated components. The conclusion of the Contract with the Partnership was preceded by the results of the tax examination No. 2 dated June 14, 2001, according to which gold and silver were identified as objects of taxation for royalty payments. At the same time, copper has not been identified as a subject of royalty taxation. Clause 4.3.3.2 of Addendum No. 2 to the Contract stipulates the royalty rates for gold and silver mining. The work program for the Contract, agreed with the Competent Authority, stipulates that gold and silver are the objects of extraction, and copper is classified as an associated component.

The Judicial Board pointed out that the arguments of the Partnership that the concepts of "associated component" and "associated mineral" are distinguished at the level of regulatory legal acts deserve attention. According to the Resolution of the Government of the Republic of Kazakhstan dated October 18, 1996 No. 1287, both minerals and reserves of associated components (recoverable and non-recoverable) are to be included in the State Balance Sheet. Such accounting is necessary for calculating subsurface reserves. At the same time, the objects of taxation are determined by the Tax Code by distinguishing minerals from associated components. From the tax audit Act No. 33 dated August 15, 2014, it follows that during the smelting of copper, the technological ore is completely melted and its components (with the exception of gold and partly silver) turn into slag - non-recyclable waste from copper production (copper remains in the slag). These circumstances are consistent with the conclusions of the Interregional 4 Department of Zapkaznedra of the Committee of Geology and Subsoil Use and JSC U (the acquirer of gold-bearing ore) that only gold and silver are the object of extraction, copper is not extracted from the ore concentrate due to unprofitability.

By virtue of Article 337 of the Tax Code (as amended before 2015), the taxable amount of redeemed reserves is the amount of redeemed mineral reserves contained in mineral raw materials, the extraction, use (sale) of which are provided for by the terms of the subsoil use contract, minus the amount of normalized losses, for the tax period.

According to the provisions of these norms, MET taxation was provided for only those, the extraction and use of which is directly stipulated by the terms of the contracts. This contract does not provide for the extraction and use of copper. 

Attention!   

       Law and Law Law Law draws your attention to the fact that this document is basic and does not always meet the requirements of a particular situation. Our lawyers are ready to assist you in legal advice, drawing up any legal document suitable for your situation.  

 For more information,  please contact a Lawyer / Attorney by phone: +7 (708) 971-78-58; +7 (700) 978 5755, +7 (700) 978 5085. 

Attorney at Law Almaty Lawyer Legal Services Legal Advice Civil Criminal Administrative Cases Disputes Protection Arbitration Law Firm Kazakhstan Law Office  Court Cases