The Province of Santa Cruz Imposes a Tax on Mining Properties.

This new tax on mining real estate property has constitutionality issues.

On June 14, 2013, the Legislative Branch of the Province of Santa Cruz passed certain amendments to the Provincial Tax Code and the Provincial Tax Law, which set out a new tax on mining real estate property (the “MREPT”).

The main points stipulated by the MREPT are:

i. Subjects - Anyone holding title to a mining concession within Provincial territory must pay the MREPT.
ii. Rate - The MREPT is based on 1% of the value of mine reserves (technically and economically exploitable) in the national and international market –whichever is higher. The value of the mine reserves will be the volume indicated in the feasibility study and/or the financial statements.
iii. Sale - Considering mines being sold (regardless of the date of delivery), both the seller and the purchaser are jointly liable for tax payment as long as the mine is not transferred.
iv. Exemptions - The following are exempted from paying MREPT: (a) concession holders undergoing prospection or exploration, up to the filing of the feasibility study; (b) those who hold concessions for second and third category mines; and (c) State-owned companies or companies in which the State has a majority stake. Those exempted must state their condition before the Provincial tax authorities.

The MREPT has been enacted into Law No. 3318 (published in the Official Gazette on 07/05/2013).

This new tax levied on mining property within the Province of Santa Cruz has constitutionality issues; among them, for example: (i) it does not seem logical to consider MREPT as a tax on real estate (as the law intends to), thereby placing the matter within the Province of Santa Cruz’s tax authority; (b) MREPT does not seem to consider the status of companies sheltered under tax stability certificates granted in accordance with the Mining Investment Law (Law No. 24,196); and (c) the tax burden resulting from MREPT in mining projects could be deemed, in some cases, “confiscatory”.

In view of the material issues resulting from MREPT, it is very likely that mining companies will plea for its unconstitutionality in court. Taking similar action, foreign stockholders in mining companies could file claims based on Bilateral Investment Treaties.