Section 164p. 164

PUBLIC INTERNATIONAL LAW COMPENDIUM VOLUME I

commercial production and necessary to carry out the

plan of work, except those chargeable to operating costs.

(i) The proceeds from the disposal of capital assets and

the market value of those capital assets which are no

longer required for operations under the contract and

which

are

not

sold

shall

be

deducted

from

the

contractor's

development

costs

during

the

relevant

accounting year. When these deductions exceed the

contractor's development costs the excess shall be added

to the contractor's gross proceeds.

(j) The contractor's development costs incurred prior to

the commencement of commercial production referred

to in subparagraphs (h)(i) and (n)(iv) shall be recovered in

10

equal

annual

instalments

from

the

date

of

commencement

of

commercial

production.

The

contractor's development costs incurred subsequent to

the commencement of commercial production referred

to in subparagraphs (h)(ii) and (n)(iv) shall be recovered in

10 or fewer equal annual instalments so as to ensure their

complete recovery by the end of the contract.

(k) "Contractor's operating costs" means all expenditures

incurred

after

the

commencement

of

commercial

production in the operation of the productive capacity of

the area covered by the contract and the activities related

thereto for operations under the contract, in conformity

with

generally

recognized

accounting

principles,

including,

inter

alia ,

the

annual

fixed

fee

or

the

production charge, whichever is greater, expenditures for

wages, salaries, employee benefits, materials, services,

transporting, processing and marketing costs, interest,

utilities,

preservation

of

the

marine

environment,

overhead and administrative costs specifically related to

operations under the contract, and any net operating

losses carried forward or backward as specified herein.

Net operating losses may be carried forward for two

consecutive years except in the last two years of the

contract in which case they may be carried backward to

the two preceding years.

(l) If the contractor engages in mining, transporting of

polymetallic nodules, and production of processed and

semi-processed

metals,

"development

costs

of

the

mining sector" means the portion of the contractor's

development costs which is directly related to the mining

of the resources of the area covered by the contract, in

conformity

with

generally

recognized

accounting

principles,

and

the

financial

rules,

regulations

and

procedures

of

the

Authority,

including,

inter

alia ,

application fee, annual fixed fee and, where applicable,

costs of prospecting and exploration of the area covered

by

the

contract,

and

a

portion

of

research

and

development costs.

(m)

"Return on investment" in any accounting year

means the ratio of attributable net proceeds in that year

to the development costs of the mining sector. For the

purpose of computing this ratio the development costs of

the mining sector shall include expenditures on new or

replacement equipment in the mining sector less the

original cost of the equipment replaced.

(n) If the contractor engages in mining only:

(i) "attributable net proceeds" means the whole of the

contractor's net proceeds;

(ii) "contractor's net proceeds" shall be as defined in

subparagraph (f);

(iii)

"contractor's

gross

proceeds"

means

the

gross

revenues from the sale of the polymetallic nodules, and

any other monies deemed reasonably attributable to

operations under the contract in accordance with the

financial

rules,

regulations

and

procedures

of

the

Authority;

(iv)

"contractor's

development

costs"

means

all

expenditures incurred prior to the commencement of

commercial production as set forth in subparagraph (h)(i),

and

all

expenditures

incurred

subsequent

to

the

commencement of commercial production as set forth in

subparagraph (h)(ii), which are directly related to the

mining of the resources of the area covered by the

contract,

in

conformity

with

generally

recognized

accounting principles;

(v) "contractor's operating costs" means the contractor's

operating costs as in subparagraph (k) which are directly

related to the mining of the resources of the area covered

by the contract in conformity with generally recognized

accounting principles;

(vi) "return on investment" in any accounting year means

the ratio of the contractor's net proceeds in that year to

the contractor's development costs. For the purpose of

computing this ratio, the contractor's development costs

shall

include

expenditures

on

new

or

replacement

equipment

less

the

original cost of the equipment

replaced.

(o) The costs referred to in subparagraphs (h), (k), (l) and

(n) in respect of interest paid by the contractor shall be

allowed to the extent that, in all the circumstances, the

Authority approves, pursuant to article 4, paragraph 1, of

this Annex, the debt-equity ratio and the rates of interest

as reasonable, having regard to existing commercial

practice.

(p) The costs referred to in this paragraph shall not be

interpreted as including payments of corporate income

taxes or similar charges levied by States in respect of the

operations of the contractor.

7. (a) "Processed metals", referred to in paragraphs 5 and

6, means the metals in the most basic form in which they

are customarily traded on international terminal markets.

For this purpose, the Authority shall specify, in its financial

rules,

regulations

and

procedures,

the

relevant

international terminal market. For the metals which are

not traded on such markets, "processed metals" means

the metals in the most basic form in which they are

customarily

traded

in

representative

arm's

length

transactions.

(b) If the Authority cannot otherwise determine the

quantity of the processed metals produced from the

polymetallic nodules recovered from the area covered by

the contract referred to in paragraphs 5(b) and 6(b), the

quantity shall be determined on the basis of the metal

content of the nodules, processing recovery efficiency

and other relevant factors, in accordance with the rules,

regulations

and procedures of the Authority and in

conformity

with

generally

recognized

accounting

principles.

8.

If

an

international

terminal

market

provides

a

representative pricing mechanism for processed metals,

polymetallic nodules and semi-processed metals from

the nodules, the average price on that market shall be

used.

In

all

other

cases,

the

Authority

shall,

after

consulting the contractor, determine a fair price for the

said products in accordance with paragraph 9.

9. (a) All costs, expenditures, proceeds and revenues and

all determinations of price and value referred to in this

article shall be the result of free market or arm's length

transactions.

In

the

absence

thereof,

they

shall

be

determined

by

the

Authority,

after

consulting

the

contractor, as though they were the result of free market

or arm's length transactions, taking into account relevant

transactions in other markets.

(b) In order to ensure compliance with and enforcement

of the provisions of this paragraph, the Authority shall be

guided

by

the

principles

adopted

for,

and

the

interpretation given to, arm's length transactions by the

Commission on Transnational Corporations of the United

Nations, the Group of Experts on Tax Treaties between

Developing

and

Developed

Countries

and

other

international

organizations,

and

shall,

in

its

rules,

regulations

and

procedures,

specify

uniform

and

internationally

acceptable

accounting

rules

and

procedures, and the means of selection by the contractor

of certified independent accountants acceptable to the

© Compiled by RGL

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