New tax regime for offshore petroleum - Rabbitte
Energy & Natural Resources Minister Pat Rabbitte today announced that the taxation provisions relating to petroleum exploration and production are to be revised upwards to provide for an increased financial return to the State from discoveries made under future exploration licences and licensing options.
The Government sought the advice of Wood mackenzie - international experts in the sector, on the “fitness-for-purpose” of Ireland’s fiscal terms, and what level of fiscal gain is achievable for the State and its citizens.
Minister Rabbitte pointed to the key central conclusion which is that there is scope for strengthening the current fiscal system in terms of:
- providing for an increase in the overall State take;
- ensuring an earlier share of revenue for the State; and
- addressing what Wood mackenzie consider to be inconsistencies in the current fiscal system.
The principal recommendations made by Wood mackenzie are as follows:
- For now Ireland should maintain a concession system, with industry rather than the State bearing the risk associated with investing in exploration;
- Going forward a form of production profit tax should continue to apply in Ireland, but for discoveries made under future licences the form of this tax should be revised;
- The tax should be charged on a field-by-field basis with the rate varying according to the profitability of the field and charged on each field’s net profits;
- That the revised tax should include a minimum payment at a rate of 5% which would function like a royalty and would result in the State receiving a share of revenue in every year that a field is selling production;
- That the revised tax rates should be higher than the Profit Resource Rent Tax currently in place, thereby ensuring a higher share for the State from the most profitable fields. This would result in a maximum rate of 55% applying in the case of new licences, compared with a maximum rate of 40% under the current fiscal regime; and
- That the corporation tax rate applying to petroleum production should remain at 25%.
For more information read the full press release here.