Tax break agreed in Reko Diq case

ECC approves tax exemption on $900m payment to Antofagasta under exit deed

ISLAMABAD:

The government has approved tax exemptions on the payment of $900 million to Antofagasta under an exit deed for the settlement of Reko Diq dispute.

In a recent meeting held on March 25, the Economic Coordination Committee (ECC) of the cabinet considered a summary regarding the Reko Diq settlement deal.

The Petroleum Division sought approval of the ECC for the latest version of Antofagasta exit deed along with the change suggested by the Attorney General’s office and a decision on tax exemption as suggested by the Federal Board of Revenue (FBR).

It was informed that the Law and Justice Division cleared the Antofagasta exit deed and told the Petroleum Division to seek comments of the Attorney General on Clause 2.6 and 12.1 of the subject deed.

The economic decision-making body was apprised that the Attorney General had observed that the legislation was to be enacted by November 30, 2022, which was agreed to by Antofagasta.

The Petroleum Division said that the Finance Division had conveyed its concurrence to the latest version of Antofagasta exit deed.

The FBR had observed that the payment of settlement money of $900 million to Antofagasta was taxable in Pakistan as a business receipt or as a capital on the direct or indirect transfer of shares of Antofagasta in TCC depending on the structure of transaction, the ECC was informed.

The FBR stated that as far as exemption from taxes (as per the new exit deed) was concerned, the federal cabinet should grant exemption, “if it so desires”.

It suggested that under the exit deed, the government parties should make the payment or ensure that the payment be made, in whatever manner Antofagasta requests, to a bank located in the jurisdiction (country) where Antofagasta legally resides subject to Pakistan’s obligations under bilateral or multilateral commitments including agreements and conventions.

The FBR was of the view that it would be obligated to share particulars of the transaction involving payment of $900 million to Antofagasta with all relevant jurisdictions under the operating bilateral and multilateral agreements, conventions and frameworks, in case the exemption is granted by the federal cabinet.

The Petroleum Division also shared the views of the government of Balochistan that stated the subject exit deed, prepared and shared by Antofagasta, had already been approved by the ECC and federal cabinet and now a revised version, as shared by Antofagasta, would be placed before the ECC.

Since the deed is mainly based on the structure of payment to Antofagasta by the federal government and Balochistan has no financial liability, therefore the government of Balochistan had no objection, if the federal cabinet approves the latest version.

However, the timelines mentioned in the exit deed in Clause 2.2d(i) regarding “legislation by GoP/ GoB” and 12.1 regarding grant of exploration licence in favour of TCC should be complied with by the government of Balochistan, subject to completion of the preceding steps by other parties.

The ECC chairman gave directives to appropriately consider the views of the government of Balochistan.

The Petroleum Division proposed that the ECC may approve the latest version of Antofagasta exit deed along with the changes suggested by the Attorney General and a decision on tax exemption may be taken as suggested by the FBR.

The ECC considered the summary submitted by the Petroleum Division titled “Settlement of the Reko Diq Dispute (Tethyan Copper Company vs Islamic Republic of Pakistan” and approved the proposal as contained in para-11 of the summary along with grant of exemption from taxes as per the new exit deed subject to approval of the federal cabinet.

Published in The Express Tribune, March 31^st, 2022.

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