The Government has used the Finance Bill to rubber-stamp its long-since mooted broader tax terms for exploration firms with Irish offshore interests, despite widespread calls for a revision of the proposals in light of depressed oil prices.
The new petroleum production tax, which was first proposed in mid-2014 and formally introduced yesterday, will see the top rate of tax on profits made from any future oil/gas finds in Irish waters go from 40% to 55%, with an additional 5% royalty revenue payable to the State for each year of a producing field’s lifespan.
Although the terms were proposed before the oil price sank to $50 per barrel, the Government has said that the analysis was based on a $60+ environment, not a $100 per barrel environment. The terms are based on advice from energy consultants Wood McKenzie.
However, a recent PwC report edmonstrated that 70% of exploration firms wanted a change to the fiscal terms, purely based on changing oil prices.
Again yesterday, the new tax regime was criticised, as was the omission of desired incentives for smaller acreage holders offshore.
“The effect of this tax is difficult to predict,” said to Joan O’Connor, tax partner with Deloitte.
“Currently, the global energy and resource companies are under substantial financial pressure worldwide, due to the paradigm shift in the pricing of oil in the last two years.
“With no substantial short to medium-term price increase likely, there are concerns about the ability of these companies to repay debt on borrowings and, indeed, to refinance their large asset bases.
“This refinancing is linked to the market price expectation and cost base. Additional tax places a further cost burden in a time of uncertainty.
“The question is: what will the incremental tax take under these new provisions actually be?
“Because, notwithstanding significant advances in technology for petroleum production, vast areas of the Irish offshore remain available but are very difficult for the industry to explore. In order for this tax to bring an incremental tax flow to the Exchequer, industry must know the best areas to target for exploration.”
Pat Rabbitte, the energy minister at the time of the proposals, yesterday said they remain fair and will engender industry confidence in the Irish market.
Other than giving effect to the various taxation measures announced in last week’s Budget, the Finance Bill included previously un-announced measures; including an exemption from an employee USC charge in respect of employer contributions to a PRSA, in line with the existing exemption for employer contributions to occupational pension schemes.
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