A mining company of foreign capital put forward a writ of amparo (a constitutional protection mechanism against the abuse of power and the safeguard of fundamental rights of citizens before the State Power) in order not to pay to the State the royalties of 7.5% of the extracted wealth out of the Mexican subsoil. The case has reached the Supreme Court and has been appealed by the Secretariat of Finance (Secretaría de Hacienda). In the event of succeeding, the transnational of the extractive industry could follow the same procedure in order to evade the payments required by the new legislation, which according to specialists and activists remain negligible. The Chief Audit Office of the Federation (Auditoría Superior de la Federación) estimates that between 2008 and 2013 the mining companies barely left 0.6% to Mexico out of the 1.2 billion pesos earned.

A transnational mining company put forward a writ of amparo in order not to pay the royalties for the extraction of minerals out of the subsoil of 7.5% annually and in force since the 1st of January 2014. This same writ of amparo also goes against the rate of 0,5% of the income derived of the disposal of gold, silver and platinum, changes that should have been paid at the end of last March.

This would be the first trial of this kind being now analyzed in one chamber of the Supreme Court of Justice (Suprema Corte de Justicia de la Nación, SCJN), and after a year that the Congress had approved a fiscal change to the extraction of natural resources throughout this activity. This would also be the first payment evaded as long as the ministers of the Court don’t resolve in favor of the State.

The writ of amparo of the mining company of foreign Capital, of which the lawyer’s office Calderón, González and Carvajal omits its name for the confidentiality of its clients, was granted by the First Judge of the Auxiliary Central District of the First Region with its seat in Mexico City.

In an interview with Contralínea the lawyer Francisco González Zentella, member of the lawyer’s office, explains that the judge granted the writ of amparo the 25th of July 2014, against the articles 268 and 270 of the Federal Law of Duties (Ley Federal de Derechos) “so that the complainant company shall not pay those contributions”.

The specialized lawyer in tax litigation exposes: “The court considered that there is no coherence on the basis of tax collection and the law as such, because there we are dealing with a utilitarian basis that has nothing to do with real profits or with the use and utilization of the good of public national domain”.

The article 268 establishes that the obligation, on an annual periodicity, to the holders of concessions and mining assignments, of the payment of a special fee on mining activity, applied with a rate of 7.5% over the positive difference, which is determined based on the fiscal utility as a result of the Income Tax Law (Ley de Impuesto sobre la renta, LISR) with some adjustments.

For the determination of the basis of the special law on mining the cited article establishes the following: “the income refund to the paragraph above will be determined considering the accumulated income of the concessionary or assigned mining company according to the Income Tax Law, with the exception of the Section IX, X and XI of Article 18 of the aforementioned law, or the ones it substitutes”.

Likewise the article 270 of the same law requires that “the holder of concessions and mining assignments will pay annually an extraordinary fee over the mining activity, applying a rate of 0.5% of the derived income of the disposal of gold, silver and platinum, via the declaration by the (…) (SAT) no later than the last business day of the month of March of the following year of the current one of payment.

The misery of the industry

Litigant lawyer on issues of collective human Rights and member of the Colectivo de Abogad@s (Collective of Lawyers) Claudia Gómez Godoy comments in an interview that this kind of action by the mining companies basically “obeys to what companies were used to, not to pay absolutely nothing for all the mineral taken out; in other words the law was not measured in relation with the obtained amount rather with the obtained amount rather with the concessioner area (through the payment of duty): notwithstanding whether in that hectare sand or gold were extracted. And since 1992 this regulation has been supplied, this allowed an impressive sack.

“With the change of the law, now there is a topic of royalties. Now there is an imposition in accordance with obtained quantity, with scares regulation on how to report, but at least there is one now. In countries with a mining tradition or where most of income depends on the mining activity as Peru, Colombia (or) Ecuador. There is compensation and benefit for the State, as people rely on the mining income, same as we rely on petroleum.”

Proof of the mining sack is documented by the same federal authorities, where it illustrates that the Canadian firm First Majestic Silver Corp. leaves 0,004% of its annual profit for the extraction of silver in the State of Coahuila, as reports the study about mining activity in Mexico, a compared Analysis with Canada (Estudio de la Minería en México, un análisis comparado con Canadá, presented in November 2013 and the latest to be released to the date).

The document-drafted by the National Commission for the Development of Indigenous People (Comisión Nacional para el Desarrollo de los Pueblos Indígenas, Cdi) estimates based data of the Canadian Stock Exchange that for First Majestic Silver Corp., the concession of 4,000 hectares of the La Encantada Project in Coahuila- with 4 years of operation and an annual payments of duty if 17,04 pesos –representing an annual sum paid to the treasury of 68,160 pesos; equivalent to 0,004% of its gross utilities, while it ascends up to 1,464,679,535 pesos.

It also documents the case of San José del Progreso, Oaxaca, where the firm Fortuna Sliver Mine Inc. (FSMI), exploits in a concession of 30,000 hectares gold and silver. The Canadian enterprise reached an annual payment of 4,252,800 pesos for the payment of duties, 0.20% of its utilities, summing up 2,124,636,500 pesos.

Another case which puts in evidence the little contribution that made mining companies with the state is Timmins Gold Corp, which holds a concession of 70,986 hectares of the gold mine in TMM, Section 1 in the State of Sonora, and which represent 0,03% of its utilities, equivalent to 2,061,335 pesos, calculated by the Cdi for this report.

The mining defense

In order to obtain the writ of amparo the legal Office strongly argued on three principles which they consider are being violated with the collection of royalties: the equity, legality and proportionality.

González Zentella calls into question the issue of equity, “in legal terms only the concessionaires or assignees of mining concessions will be compelled to the payments: What happens with those mines which are not contemplated by the mining law, for example marble…Is it of public dominion? Without a doubt, but it is not subject of payment of duty as it is not concessionary.

“I think that if the purpose of the right is the use and utilization if that good of public domain of the nation, therefore there shouldn’t be any difference between those who held a concession and others who don’t. This is clearly an inequality.”

“In legal matter specialized lawyer in fiscal litigation called into question on which the scope of the mineral extraction on: where it begins and where it end? Is it at the pit-head or if I do all the process until the selling the ingot? The law doesn’t specify it. This allows the authorities to interpret and to levy wherever they consider that the extractive activity comes to an end, it’s an issue of legality”.

The proportionality is precisely the subject for which the writ of amparo was granted in the sentence of the 25th of July, explains in an interview González Zentella, as it is considered to be an incoherent utility base, because it does not determine the (type of) use or utilization of goods of public domain of the nation”.

For the lawyer the payments of duties of the industry made was quite enough to compensate the fiscal contribution: “I agree that the industry should leave something in exchange for the extracted mineral. At the end of the day it was what they were paying for the ownership of the concession in form of duties. I believe that the royalty should exist, but in this set it remains very much to the discretion of the authorities to tax how they want.”

Gustavo Castro, member of the Mexican Network of Affected (People) by the Mining Activity (Red Mexicana de Afectados por la Minería, REMA), points out in an interview with Contralínea that the fact that the enterprise had initiated a legal action to shield itself with a writ of amparo of the payment of taxes –when the condition of investment for the exploitation are quite in the benefit of the own corporation-, puts in evidence the disposition of this enterprise, insofar the level of compromise it has with the state is taken into account, i.e., none at all.

Poor Collection of Duties: ASF

The payment of duties required to the mining companies does not reach 1%, until the last year previous to the changes of the Articles 268 and 270, in comparison with the benefit of the exploiting enterprises of the riches of the Mexican of the Mexican subsoil. In average between 2008 and 2013 it is barely 0.6%, as reveals the Report of the Results of Superior Audit of Public Account 2013 (Informe del Resultado de la Fiscalización Superior de la Cuenta Pública 2013).

The revision performed by the Auditor General of the Federation established that in the period 2008-2013 the income on duties over mining activity registered an amount of 7,100,512,900 pesos, which represented 0.6% of its mining production value, accumulated in this lapse for an amount of 1,234,037,646,200 pesos.

In 2013 a total of 1,734,479,600 pesos related with the collection of mining duties which represented 0,7% in relation with the value of the mining production of 262,353,283,200 pesos during that year.

According to the Mining Projects Directorate (Directorio de Proyectos Mineros) of the Secretariat of Economy, in Mexico there are 864 projects all over the country with foreign investment, originated from Canada, USA, UK, China, Italy, Argentina and India, accounting up to a total of 293 enterprises.

Information provided by the own dependency indicate that Mexico is the 1st producer of silver worldwide and it is ranked among the 10 main producers of 16 different minerals: gold lead, zinc, coper, bismuth, fluorite, celestine, wollastonite, cadmium, diatomaceous earth, molybdenum, barite, salt, gypsum and magnesium mainly.

Additionally to the its riches in the Mexican subsoil is of great attractiveness for foreign investment, which locates itself as the first destination for mining exploration and the fourth one worldwide, indicates the report Metal Economics Group, released in 2013.

The Secretariat of Economy promotes Mexico as the fifth country “with the best environment to do mining business”; based on the report of the Consultant Behre Dolbear in April 2013.

Mexico: the country with the least Tax Collection in Latin America

The analysis Mining Legislation in compared right, the cases of Chile, Peru, Guatemala, and El Salvador reveals Mexico as a country of weak tax collection in relation with these countries of Latin America, in which the mining sector is one of the most important for its economic development.

Chile as an example is one if the countries in which the taxes that is ruled among other norms by the Tributary Code (Código Tributario), the Income Tax Law (Ley sobre el Impuesto a la Renta) and the Sale and Service Tax Law (Ley de Impuesto a las ventas y servicios) that establishes the Value-added Tax (Impuesto sobre el Valor Agregado, IVA).

In this country the Income Tax Law states that this tax ascends to 17% of the net income for those domiciled in Chile, up to 35% for those domiciled and 42% of the net income for those under the agreement of the Tax Stability. According to the Sale and Service Tax Law the rate of the IVA is 19%.

Ecuador establishes in its Article Nr. 93 of the Mining Law that the titleholders of the mine must realize the payments on the Sale of the main and secondary mineral of the following taxes: not less than 5% of the Sales in royalties; 25% income tax, 12% determined utilities; 70% on extraordinary income; 12% for the value-added tax determined in the applicable tax norm.

Guatemala imposes the payment of royalties, paid annually by the licensees of the exploitation to the State for the extraction of mineral products. The payment is also realized in the benefit of the Municipality in the case the deposit is located within its jurisdiction. If its location is within several municipalities the royalties are divided proportionally.

In the country the royalties are determined through certified declaration of the volume of the commercialized mining product, based on the value of market value in the domestic market or international Stock Exchanges.

Peru is another of the countries that impose their collection through royalties. The analysis of the compared right indicates that these are the economic compensations paid by the concessionaires and the ones responsible for the exploitation of mineral resources, which will eventually be used up; it is created at the close of every trimester and it us calculated over operative utilities, i.e. the income of sales, minus the selling costs, administrative costs, adjustments for tax liquidations, discounts and refunds (Fortuna Review, issue of May 2014).

Erika Ramírez, @erika­_contra

Translated by: Axel Plasa

 Contralínea 433 / del 19 al 25 de Abril 2015


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