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The Supreme Court regarding tax on the extraction of gold concentrates

28.12.2023
3 min read
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The Russian Supreme Court has solved the issue of a royalty coefficient when mineral extraction tax is assessed on concentrates which contain gold and other precious metals.Case No. A60-42662/2022.
 The Court’s decision allows for excessive tax payments to be avoided and is relevant for all payers of mineral extraction tax.

Facts of the case

Starting from 1 January 2021, mineral extraction tax with regard to certain minerals has been assessed subject to the 3.5 royalty coefficient (Croyalty) which actually means a 3.5 increase of the tax rate.

For concentrates containing gold and/or silver, the royalty coefficient is set at 1. The taxpayer applied this very coefficient because it extracts concentrate which contains gold (the concentrate also contains platinum and other metals of the platinum group).

The tax authority acted differently: referring to the fact that the content of gold was small as compared with platinumIt should be noted that the content of gold in the concentrate the company is extracting is dozens of times higher than the minimum content which is sufficient for the concentrate to be recognised as containing gold.
, the tax authority conveniently (based on the value of the proportions) divided into two parts the single (indivisible into components when extracted) mineral, i.e. the concentrate which contained several precious metals. With regard to gold, it applied the royalty coefficient of 1, whereas with regard to platinum and metals of the platinum group, it used the multiplying royalty coefficient of 3.5. Accordingly, an amount of mineral extraction tax was assessed additionally on this part of the single mineral extracted. The state commercial courts of three instances agreed with this approach of the tax authority.

The Supreme Court’s decision

While quashing the judgments of lower courts and invalidating the decision of the tax authority, the Supreme Court, among other important things, stressed the following:

  • the legislature has singled out concentrates which contain gold into a separate category, having stipulated the tax rate of 6% for these taxable items and having excluded the royalty coefficient of 3.5 for them as well

  • the Russian Tax Code does not provide for any other differentiation of the terms of taxation (application of different rates and values of the royalty coefficient to particular precious metals depending on the degree of content of gold).

The relevance of the Supreme Court’s decision for taxpayers

Subsoil users that have been paying tax with regard to concentrates that contain gold and/or silver by applying the 3.5 multiplying coefficient are entitled to have paid in excess amounts refunded to them according to the established procedure.

Subsoil users that extract other minerals may also apply conclusions made by the Supreme Court to resolving their own disputes.

Help from your adviser

Pepeliaev Group’s lawyers represented the interests of the subsoil user in the Supreme Court and are ready to assist taxpayers in cases of disputes over the assessment and payment of the mineral extraction tax (taking into account the subtleties of the case) and over the refund of taxes which were either paid or collected in excess.

Translated by the Translation Department of Pepeliaev Group.

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