EU Needs to Halt Direct Investment into Mining in Africa

May 25, 2011 Taxation in EUTaxation in Zambia

EU Needs to Halt Direct Investment into Mining in AfricaA ban on the government financing of mining activities has been called for in Europe, following allegations of gross tax evasion by resource sector operators in Africa.

Fifty members of the European Parliament have signed an open letter to the EU president and the European Commission, calling for a temporary suspension on all government financing of international mining projects. The moratorium is to be upheld until adequate standards can be put in place to protect the tax revenues and development opportunities for the countries in which the mining takes place.

According to the letter, each year sees millions of Euros flow from the European Investment Bank (EIB) into international mining and resource extraction projects, for the purposes of encouraging development initiatives on the African continent. However, the mining industry has come under question as to whether the funds are providing any positive development impact. The letter claimed that the EIB does not hold the resources necessary to ensure that the investments are being adequately utilized, and also that the Bank is not able to control that the mining sector refrains from tax evasion and other illicit financial activity. While presenting the letter to the European Parliament on May 24th Thijs Berman, a member of the Eurpean Parliament and one of the authors of the letter, explained, “…due to favourable tax regimes, low labour standards and a significant environmental impact, it is rarely the hosting country or its population benefiting from these mining projects. It is rather the international mining companies that make the profit and I don’t see why they would need public financial support for that.”

As an example, the letter brought up recent news surrounding Mopani Copper Mine (MCM), which received a EUR 48 million loan from the EIB in 2005. It was claimed that a leaked audit of the company showed that aggressive tax practices were repeatedly utilized to avoid payment of taxes in Zambia, where the company conducted its mining activities. It was pointed out that in April alone, five different non-government organizations had filed complaints regarding MCM’s parent company for gross violation of the OECD standard arm’s length principals. In the letter it was suggested that the European Commission begin investigations into legislative changes to address tax evasion by international mining companies.

Photo by Shawna_Nelles