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Sector View

Mining for a single source of truth

Different regulators and authorities force mining and metals companies to tell the same story in multiple disclosures.

By Andrew van Dinter, EY member firm partner, EY Global Tax Leader for the Mining and Metals Sector, EY Oceania Region’s Global Compliance and Reporting Leader

A phrase coined by software engineers, “single source of truth” refers to the practice of storing all data in only one place. Remote applications needing the data must not copy it; instead, they should refer back to the primary “source of truth” location. That way, updates to the primary data will propagate throughout the entire system.

Electronic health records are a common way to illustrate this practice. Clearly, patients who have multiple doctors would prefer them all to enter test results and diagnoses into one master record, not to maintain separate databases, each of which provides an incomplete picture of the patient’s health. For most patients in the world, however, multiple records are typical.

"Digital tools can help accurately articulate to government authorities and communities that their natural resources are being extracted in a way that’s economically beneficial to all of society."


Similarly, investors and tax authorities would like a single source of the truth about company disclosures — that is, one set of data that accurately tells the story of a company’s contributions to government and the community. Mining and metals companies are under particular pressure to produce such reports, but like all other companies, they currently publish multiple versions. In fact, they are required to do so.

Different regulators and authorities ask for various reports that don’t necessarily correspond to the structure of the company’s enterprise resource planning (ERP) system. Sometimes they want the same data presented different ways, but often the required data comes from various sources. As a result, companies and their advisors, like us, spend a fortune in time and money doing manual manipulations at regulators’ request, mostly in spreadsheets.

This demand for total transparency about a large, complex company’s financials is always most intense when governments are under stress.

Echoes of the financial crisis

Because natural resources are also national resources, mineral extraction requires more explicit government permission than other business activities, and securing that government permission requires public satisfaction that the mining company is paying its “fair share” of tax. This has always been the case, but during the global financial crisis, almost every nation dependent on natural resources debated or implemented increases in taxes on mineral extraction.

The industry responded with a raft of “social contribution reports.” This documentation of their contributions to society serve a purpose, but governments often focused on the fact that the numbers in them often diverged from what appeared on the companies’ tax returns.

Since profitability in this highly capital-intensive industry is heavily scrutinized, tax controversy is always looming. All this adds up to mining and metals companies needing the “single source of the truth” to satisfy a growing number of stakeholders more than any other sector of the economy. But how does the industry get there?

The digital revolution presents us with a solution

Advanced digital technologies like robotic process automation (RPA) are enabling us to imagine a path to more simple and complete transparency. As a global organization, we begin by performing the exact same data manipulations the client already performs, but we use RPA, particularly for indirect or other transactional taxes. Companies enjoy the ability to speed up the production of the multiple reports with which they are familiar.

A critical element of calculating taxable income is depreciation for mining and metals companies. There is now the ability — through digitalization — to help support every depreciation claim much more precisely, even checking depreciation schedules against real data. Digitalization and big data enable us to narrow the gap between real life and statutory presumptions.

Executive management now expects the tax function in the mining and metals sector to help reduce cost, improve productivity and reduce the risk around what’s called “social license to operate” — that is, government and community approval to continue operating.

The next generation of improvements is coming from our Tax, Technology and Transformation (TTT) team, which has been building approaches that shortcut those difficult data extractions. For example, a tool might search for “repairs” in all client data, including in the ERP system, the fixed asset register and in unstructured data such as email.

By analyzing both the qualitative and quantitative aspects of this data, a more precise and accurate tax reflection of that expense can be determined. This is a massive technological leap, and the opportunity to do different things is extraordinary.

A true “single source of tax truth” will require more digital progress in private sector tax functions and probably some adjustments in government reporting requirements. But mining and metals companies understand the special role they play in national economies, to government, the community and their shareholders. Digital tools can help accurately articulate to government authorities and communities that their natural resources are being extracted in a way that’s economically beneficial to all of society.

How EY can help: Mining and metals tax services

LEARN MORE

EY’s Connected Tax spotlights the rise of the tax function as a strategic boardroom partner. We help you link the broader organization and its stakeholders, tax authorities, and the data and information that are transforming business models. Learn more at www.ey.com/connectedtax.

CONTACT

Andrew van Dinter
andrew.van.dinter@au.ey.com
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EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

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