The document is a memorandum from the Legislative and Tax Working Groups of the Business Council of Mongolia providing comments on Mongolia's draft corporate income tax law. It recommends postponing discussion of the draft law to allow more review of its business implications. It expresses concerns that several provisions of the draft law could negatively impact new businesses, foreign investment, the mining industry, and the stock exchange. The memorandum requests further engagement with the working groups on issues around the draft law.

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MEMORANDUM
From: Legislative and Tax Working Groups of the Business Council of
Mongolia
Subject: Comments Regarding the Draft Corporate Income Tax Law v.
2016.02.05
Date: 20 May 2016
I. Introduction
The Legislative Working Group was established in November 2007 as an advocate for certain
legal and business practice matters, as well as to provide the membership of the BCM with
information on legislation in Mongolia, and consists of all leading law firms and in-house
legal counsel operating in Mongolia or with business related thereto.
The Tax Working Group was initially formed in 2003 by the Mongolian branch of North-
America Business Council (NAMBC). The Tax Working Group advocates on matters that
affect general business and/or business sectors.
II. Recommendation
Acting with a collective consciousness and speaking with a collective voice we conclude:
The proposed draft clarifies the some of the provisions of the effective corporate income tax
law, eases tax reporting and renews taxation ceiling; nonetheless, it is imperative to review
the draft and identify in-depth the business implications of the proposed legislation. Thus,
as opposed to rushing in ratify before the closing of the spring Ikh Khural session, it is
recommended to postpone the discussion of the proposed draft.
I. Macro Conclusions
The draft Corporate Income Tax (CIT) law may seem as focused on regulating the current
income of the corporations, CIT draft law pertains provisions that will halt the mega

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projects, which will yield significant benefits to the economy, and discourage the slowly
regaining foreign investment interest. Many of the proposed Articles in the Draft Law will
make the local businesses economically non-viable which is in contradiction with the stated
purpose.
This version of the draft, as it stands now, will be a huge impact to the businesses facing a
challenge to survive in this economy-strapped of cash and investment; thus the Government
of Mongolia needs to make a critical decision to whether weaken the businesses in order to
recover the budget deficit or to postpone the draft until the economic climate ameliorates.
Whereas, the taxation amount has not been increased in the draft law, levying of taxes in
critical stages of business such as imposing tax on the acquisition cost of the shares and
taxing the advance payment from the contract, will further subdue private sector.
Furthermore, there are provisions in this draft that can be deemed as direct external
influences to the business operations and overall it seems the draft has been formulated
with an intention to make businesses cash bleeding.
Additionally, the proposed draft has provisions, which will lead business entities do
reporting against the international financial reporting standards; creating the risk of
ultimately leading companies to stay in the debt ridden web.
III. Representative Analysis
Our below comments are non-exhaustive and serve as a representative sample of our
concerns. The most notable areas of concern as addressed in our preliminary line-item
review attached as Appendix 1 include:
(1) Direct of risk of new businesses not starting and businesses not expanding, all of
which are crucial to the economy – Some of the provisions in this draft discourage
local businesses not to construct value adding processing, concentration plants, and
not to import world class technology and services for adoption. For example: See
Articles 17.2, 20.11, 22.5 of the line-item review.
(2) Adverse effect to the development of the Mongolian Stock Exchange – Imposing of
tax on the sales of share and securities, will lead brokerage firms close down its
operations. For example: See Articles 9.1.2, 23.1 of the line-item review.
(3) Further impact to the already deteriorating operations of the mining companies –
Increased operations cost, taxation burden and limitation of ability to raise capital to
the already troubled mining companies, badly affected by the volatility of the

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commodities prices. For example: See Articles 27.15, 20.11, 18.1.8 of the line-item
review.
(4) Negative impact on the foreign investment – Imposing tax on the acquisition cost of
shares, will further deteriorate investment climate, and such provision is against all
bilateral investment treaties where equal treatment promised to foreign investors.
For example: See Articles 4.1.8 of the line-item review.
(5) Significant provisions of the effective legislation have been omitted – Instead of
using this opportunity to make the understanding the SWOP concept consistent, this
draft does not contain the provision from the effective law, leading to a possible
misuse of the law by the tax inspectors and legal dispute. For example: See Articles
4.1.7 of the line-item review.
(6) Lack of Clarity – Please see throughout the line-item review.
For further comments or questions related to the Draft Law, please contact us collectively
at: mergen@bcmongolia.org, bayarmaa@bcmongolia.org, and otgongerel@bcmongolia.org,
so that we may distribute such further outreach and notice to the full Working Group.
*****The content of this Memorandum and attached Appendix A is intended only to provide
a summary and general overview of the Draft Law. It is not intended to be comprehensive
nor does it constitute legal advice. You should seek legal or other professional advice before
acting or relying on any of the content. Your use or the receipt of any information from us is
not intended to create nor does it create an attorney-client relationship between you and the
BCM, Legislative Working Group or its Members. To our knowledge and belief the
information contained in this Memorandum is factual as of the date of this Memorandum.
No representation, express or implied, is made as to the fairness, accuracy, completeness or
correctness of information, opinions and conclusions contained in this Memorandum.*****