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Fariz A. Guliyev: The economics of financial securities for environmental obligations and
their impact in royalty revenues from Alberta oil sands in North America
amount subject to corporate tax rate. In addition to mine operations QET rules of the Income Tax
Act are also inherent for pipeline abandonment trusts.
As stated in section 2.1 the Approval Holder calculates its MFSP Asset and Liability
balance once at the end of each year. If the Approval Holder decides to withdraw all or a portion
of its QET amount from the trust it is expected that the trustee would return the cash amount to
the Approval Holder. Such a practice with mine Approval Holders was not observed before.
4 . Tax and royalty regimes in other jurisdictions
Royalty Regimes
Governments have variety of methods to impose royalty on Approval Holders. These can
be unit based, value based also known as ad valorem, or profit and income based. In Canada,
most jurisdictions (British Columbia, Northwest Territories) tend to have profit based royalty,
Saskatchewan having both, profit based and ad valorem(Ad valorem royalty is based on the
production volume rather than gross profit based.) type royalty regimes. Appendix 1 provides the
royalty practices, types and rates across other jurisdictions.
Tax Regimes
In general, tax regimes are structured progressively. When a project becomes more profitable
their tax burdens increase too. Canada has a taxation system with a slight increase in tax burdens as
projects become more profitable due to commodity price increase. Appendix 2 describes increase in
average effective tax rates with rising internal rate of returns for mining projects. A study conducted
by Natural Resources Canada suggests that Canada, Chile and United States have more tolerant
mining taxation regime when Approval Holders project profitability increase. However, all other
international jurisdictions tend to penalize their mine projects as internal rate of project returns go up.
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