Mining—especially copper and lithium—is one of the pillars of the Andean economies. However, when mining operations are run by multinational business groups, internal pricing mechanisms (transfer pricing) can seriously affect tax collection in producing countries. This is precisely the focus of the recent ECLAC report, which analyzes how these mechanisms are applied and how they should be applied in Argentina, Chile, and Peru.
What are transfer prices and why do they matter?
“Transfer prices” are the prices agreed upon between related companies within the same multinational group, for example, between a mining subsidiary that extracts the mineral and another that provides marketing, processing, services, financing, or other functions.
When these companies act independently, prices should be set under “arm’s length” (market-based) conditions. But in the context of intra-group relationships, these prices can be manipulated to shift profits to jurisdictions with lower tax burdens—reducing the tax base in the producing country, which implies a loss of government revenue.
In mining, this is particularly relevant: the value chain includes multiple stages—extraction, processing, transportation, export, financing, services, etc.—all of which are potential points for intra-group pricing.
Particularities of the mining sector: why transfer pricing is especially critical
According to ECLAC, mining has characteristics that make it particularly vulnerable to transfer pricing abuses:
- The complexity of the mining value chain (extraction, concentration, processing, export, financing, services, insurance, etc.).
- The heterogeneity of processes: minerals such as copper and lithium can go through different stages and transformations before their final sale, which increases the opportunities to agree on internal prices that are misaligned with market value.
- Presence of related entities in low-tax jurisdictions, which facilitates under-invoicing or artificial cost overruns in intra-group transactions.
- Information asymmetries, as the tax administration often does not have the same level of technical information as the company regarding quality, mineral content, and actual commercial conditions.
Comparative analysis results: regulatory gaps and tax risks
The report reviews the regulatory frameworks of Argentina, Chile, and Peru, comparing them with international standards (mainly those of the OECD and the United Nations manual for developing countries).
Some conclusions:
- Although all three countries have transfer pricing rules, there are substantive differences in their application: in the definition of related parties, adjustment mechanisms, documentation requirements, audit controls, comparability requirements, etc.
- These regulatory and supervisory gaps represent a concrete risk: they allow mining companies to structure intra-group operations that result in under-reporting of prices (under-invoicing) in order to transfer profits out of the producing country.
- As a result, the countries analyzed could be losing a significant portion of tax revenues that, if properly recognized, could finance public investment, sustainable development, or offset environmental externalities.
ECLAC estimates: the transfer of profits in copper and lithium
One of the most revealing sections of the report presents estimates of the possible “transfer of profits”—that is, how much real economic value could be evaded or transferred outside the legitimate tax jurisdiction through manipulated transfer prices.
For copper concentrates, cathodes, and lithium carbonate—products representative of copper and lithium mining—the analysis identifies differences between the implicit prices reported by companies and the reference market prices. These differences allow us to infer undervaluation in exports, suggesting undue use of intragroup mechanisms.
Although the report does not present a generalizable absolute amount (due to variations by company, type of mineral, period, and structure of operations), it does warn that the phenomenon is systematic enough to demand urgent regulatory attention.
Recommendations for a more robust regulatory and fiscal framework
To prevent abuse and ensure fair taxation that reflects the real value generated in mining, ECLAC suggests:
- Aligning local regulations with recognized international standards, ensuring that definitions such as “related parties,” “arm’s length,” and “valuation methods” are consistent and enforceable.
- Strengthen the documentation and comparability requirements that companies must meet to justify their intra-group prices—especially in mining industries, where the complexity of operations demands a high level of transparency.
- Implement effective mechanisms for supervision, auditing, and information exchange between jurisdictions (including requirements for “country-by-country reporting,” analysis of “distributed profits,” verification of functions, risks, and assets, etc.).
- Consider specific adjustments for typical mining transactions—such as the sale of concentrates, processing, export, intragroup services, financing, and insurance—given that these processes have a high risk of manipulation.
- Promote greater international and regional cooperation to prevent companies from shifting profits to low-tax jurisdictions and ensure an equitable distribution of the tax burden.
Conclusion
The ECLAC report on transfer pricing in copper and lithium mining in Argentina, Chile, and Peru highlights a structural problem: the possibility of manipulation in intra-group transactions that affects tax fairness and revenue collection in producing countries. At the same time, it points the way toward more robust regulation that is aligned with international standards.
At TPC Group, we recognize the importance of these findings for the development of more robust tax policies and the adoption of responsible business practices. Our analysis reaffirms the need to strengthen compliance, optimize transfer pricing documentation, and ensure that intra-group transactions reflect the real value generated at each stage of the mining chain. In our experience, studies of this kind reinforce our commitment to providing specialized, evidence-based technical advice aimed at promoting transparent and sustainable cross-border operations.
Do you need specialized support in transfer pricing?
At TPC Group, we have a team of experts in the analysis, documentation, and compliance of transfer pricing in the mining sector and in all industries. We can help you identify risks, optimize your intragroup policies, and ensure that your operations comply with international standards and local requirements. Contact us and strengthen your company’s tax strategy with reliable technical advice.
Source: CEPAL