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New Mechanisms to Effectively Use the Government Take: Peru's Projects in Lieu of Taxes Law: A New Mechanism to Effectively Use the Government Take

José Augusto Palma, María Cristina Vlva, 2015 International Mining and Oil & Gas Law, Development, and Investment

In order to analyze and understand the new mechanism to effectively use the government take in Peru, it is necessary to briefly explain the legal framework of the government take policies. By way of introduction, it is important to note that under Peru's [19B-2] Constitution, natural resources within the territory belong to the Nation.3 As such, they constitute part of the national patrimony and their exploitation requires a contribution/compensation to the State.

Since 2011, there are three mineral taxes or royalties levied on the extraction of minerals in Peru: (i) New Mining Royalty;4 (ii) Special Tax on Mining5 (“IEM”); and the (iii) Special Mining Contribution6 (“GEM”). There is also a mining charge (“Canon Minero”) which, while not a tax per se, constitutes an integral part of the government-take of the sub-national governments in Peru. This section will describe each of these taxes and contributions.

a. New Mining Royalty (“MR”)

This royalty has been defined as the administrative consideration that mining companies (and any other mining concessionaire) pay to the Peruvian State for extracting metallic and non-metallic mineral resources from mining concessions.

This royalty is calculated on the basis of the quarterly operating profit.7 The rate of the MR varies from 1% to 7.14%8 depending on the operating margin of each mining company