The new Peruvian government and mining companies have reached an agreement that overhauls the royalty system and could raise an additional $1 billion for Peru annually. In addition to a 30% corporate income tax, miners currently pay 1%-3% of revenue in royalties, which totaled more than $645 million in 2010. The new amended tax structure will be based on operating profits rather than revenues. It is similar to the system employed in Chile. The new royalty rates have not yet been defined, but are expected to be higher than those currently being charged.

The Peruvian Minister of Energy and Mines, Carlos Herrera Descalzi, said the mining companies operating in the country with stability contracts shall contribute with a lien. “Although at first it was announced it would be a tax, the contribution will be given through a mining lien. Those mining with stability contracts should not pay a tax since they have stable contracts. However, the agreement we have with the mining companies says they all will contribute. Those with stable contracts and those without stable contracts,” said Descalzi.

It was emphasized in the agreement reached between the Executive Power and the National Society of Mining, Oil and Energy (SNMPE) that all of the companies stated the contribution should be “as standardized” as possible based on the needs of the state.

“All of the companies, including those so called ‘stabilized’ [whose contracts cannot and should not be touched] shall pay the lien and they will do that as an act of solidarity and good will to the country, through the payment of contributions similar to those paid by mining companies without stable contracts,” said Descalzi.

They are still working on defining the accurate legal terms and provisions, but everything indicates it won’t be a temporary, but a permanent lien.

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