79

Submission, Gutman To Barnes

Canberra, undated

Bougainville copper—discussions with C.R.A.

Further discussions have been held with C.R.A. representatives regarding the principal provisions of a draft agreement on mining the Bougainville copper deposits.

2. Agreement in principle has been reached on a number of matters, the main ones being—

●| Exploration, etc.| - not less than $5m. to be spent
—|—|—
- security of tenure for company
- application for Special Mining Lease no later than 31/12/1971.
●| Leases| - guarantees to company of grant of necessary leases
- first rights of company to mine any minerals discovered.
●| Construction| - to be completed to stage of shipping concentrates within five years of grant of leases
- expenditure not less than $25m.
●| Further
Processing| - feasibility report 6 years after commencement of production and further reports at 3-year intervals
- company may be required to sell 50% of its concentrates to another processor if it fails itself to establish further processing within 15 years of commencement of production.
●| Extensions of Time| - permitted by agreement of Administrator or if for marketing or financing reasons by decision of an Arbitrator if necessary.

3. A number of major questions will have to be resolved before the heads of an agreement can be finalised. The position on these is as follows—

●| Taxation and Royalty| - a 50/50 concept has been agreed in principle which (a) provides an umbrella that protects the company against excessive revenue measures directed at it and so avoids numerous specific exemptions from a variety of duties and taxes; and (b) provides a basis for sharing by the Administration in excess profits
—|—|—
- agreed that company be liable for general income tax and royalty irrespective of the proportion these bear to profits
- level of royalty and provisions on export duties not yet agreed upon.
●| Three-year
Tax Holiday| - C.R.A. regard as essential to assist raising of capital and repayments of borrowed funds
- effect would be to postpone the write-off of capital for tax purposes and hence the payment of income tax1
- difficulties foreseen in discriminating in favour of company
- general provision to permit tax holiday would require changes in Territory legislation
- being examined by Department in conjunction with Administration.
●| Financial Participation| - C.R.A. propose Administration be offered 20% of equity at a premium and subject to Administration finding 20% of borrowed capital
- Cabinet Submission will be necessary to authorise participation
- Discussions with Treasury being arranged on this and other matters.
●| Guarantees Against Expropriation| C.R.A. request insurance or other guarantees to protect investment against expropriation.
- In view Commonwealth policy on investment insurance it is considered impracticable to meet C.R.A.’s request.

[NAA: A452, 1966/5530]

  • 1 CRA commented in the October meeting with Commonwealth officials that ‘Unless [the three year tax holiday and deferment of capital allowances] were settled in the company’s favour it was highly probable that no agreement could be signed’ (notes of meeting, 12-13 October 1966, NAA: A452, 1967/11 07). Treasury’s advice to Territories was uncompromising on these questions: ‘While some countries, including Canada, exempt from taxation income derived during the early years of the life of a mine, they may levy tax on these new enterprises long before the enterprise has regained its invested capital … Under the income tax laws of Australia and the Territory of Papua and New Guinea, a company may remain free from income tax until all of its capital expenditure on necessary plant, development of mining property, and, in some instances, exploration has been allowed as deductions for income tax purposes … The suggestion that the company should be allowed a three-year tax holiday and deferment of the capital allowances under Division 10 of the New Guinea Ordinance is seen as an attempt to get the best of both systems. Moreover, it is certainly not a balanced approach to taxation of the mining industry’ (memorandum, Treasury (Craik) to DOT, 24 October 1966, NAA: A452, 1966/5530).