ROYALTY LIABILITY
How Kalahari miner’s victory in SARS case is a win for others
The landmark tax judgment provides much-needed certainty on mineral royalty liabilities
The high court has delivered a landmark tax judgment that will be good news for mining companies. United Manganese of Kalahari (UMK), the fourth-largest manganese producer in the world, took the South African Revenue Service (SARS) to court to obtain clarity on the treatment and deductibility of transport, insurance and handling (TIH) costs that mining companies incur when transporting minerals to customers. According to SARS, these costs form part of the gross sales amount unless the mining company can show that these costs were specifically recovered, for example, as a separate line item on an invoice. As most exporting mining companies would agree, this is not used in practice. This interpretation by SARS has a material effect on the royalty liability mining companies need to pay: mineral royalty is calculated on the gross sales amount. Therefore, if the latter includes TIH costs, the mineral royalty liability stands to be significantly increased by its inclusion. Careful scrutin...
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