OECD: Consultation on Transfer Pricing Issues Relating to Lithium

On 6 November 2023 the OECD and the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) released for public consultation a draft toolkit with the title Determining the Price of Minerals: Application to Lithium. The toolkit sets out a framework for identifying the main economic factors to take into account when determining the transfer price of minerals; and looks at the application of the framework to lithium.

The OECD and IGF have already released a final version of the practice note on a general pricing framework for minerals. The latest draft toolkit applying the framework to lithium has been compiled mainly for policy makers and tax administrations in developing countries where multinationals are carrying out mining activities.

Cross-border transactions involving mineral products between related parties present a risk of profit shifting through transfer mis-pricing. The draft toolkit on pricing of lithium provides practical guidance on delineating transactions and applying arm’s length pricing to lithium exports.

Lithium is mostly used in producing lithium-ion batteries used in powering electric vehicles, portable electronic devices, and renewable energy grid storage solutions. There are also industrial applications of lithium in industries such as ceramics, glass, lubricants, metallurgy and medical applications.

Several pricing data agencies have in recent years begun to collect pricing data and publish lithium chemical and concentrate prices. The increase in the availability of pricing data has allowed the agencies to develop lithium price indices and the pricing data is accessible by subscription. The agencies use published methodology to develop spot or contract prices, and as spot sales increase the prices reported by the agencies will more accurately reflect the market price.

The pricing indices are a reliable starting point for determining the arm’s length price. It is then necessary to establish to what extent independent parties use these indices in negotiations. A discount or a premium may be negotiated, depending on the prevailing market conditions at the time of the transaction, and this should be taken into account in establishing the transfer price.

Another other economically significant adjustment affecting the pricing of transactions in lithium is the assignment of transportation responsibilities. The amount of this adjustment will depend on the product, volume, packing and the distance of the chemical plant from the mine or port. Tax administrations may also need to take into account the cost of transportation from their country’s borders to the place of delivery used in the price assessments (cost, insurance freight or CIF price).

Interested parties are invited to send their comments on the draft toolkit by 2 February 2024.

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