Oil and gas finds profit tax ceiling raised

The Government has raised the tax ceiling on profits from all future oil and gas finds in Irish waters, but will not apply the rate hike retrospectively to licences already granted.

While the corporate tax rate for petroleum production will remain at 25%, the Government will receive 15% more revenue from the most profitable fields, with the maximum tax rate on production profits increasing from 40% to 55%.

The new tax — which will include a 5% royalty payment, meaning the State will receive a share of revenue from producing fields in each year of their lives — will be charged on a field-by-field basis. While it remains to be seen what effect the new system might have on new applications to the Government’s freshly announced licensing round (pending seismic survey results will also have an effect), the new regime will not include retroactive action on existing licences. This means that exploration firms making profits from any commercial finds at licences already awarded will be taxed at the original 40% rate.

Energy and Natural Resources Minister Pat Rabbitte unveiled the recommendations from independent energy consultant, Wood-Mackenzie, at yesterday’s ‘Our Ocean Wealth’ conference in Dublin Castle and defended the move, saying the rates shouldn’t deter interest in future licences.

“The central conclusion of the report is that, while new terms should not be retrospectively applied to existing licences, there is scope for strengthening the fiscal system to be applied to future licensing rounds; in terms of providing for an increase in the overall state take, ensuring an earlier share of revenue for the State,” he said.

The new terms are also based on the recommendation of Ireland being “a relatively high-risk and high-cost country for exploration,” meaning returns for commercial discoveries need to be “relatively high to strike the right balance”.

Reacting to the change, Donegal TD Thomas Pringle said no change was being made to how firms could write off huge costs through exploration losses, while Dún Laoghaire TD Richard Boyd Barrett said any increased tax take should be retrospective on licences already given.