New Zealand To Close Petroleum Mining Loophole

by Mary Swire, Tax-News.com, Hong Kong

05 March 2008

The government of New Zealand will close a legislative 'loophole' to prevent the leakage of significant tax revenue from the burgeoning petroleum mining industry, Finance Minister Michael Cullen and Revenue Minister Peter Dunne have announced.

Under current law, New Zealand petroleum miners can offset their expenditure in other countries against the revenue from their New Zealand operations. But according to the ministers, that means New Zealand might receive less income tax than expected on profits from oil production in New Zealand, "which is particularly unacceptable when oil production revenue from New Zealand is at an all time high and predicted to grow".

“To safeguard our taxing rights on our petroleum resources, the government will amend the Income Tax Act to ensure that expenditure on petroleum mining operations undertaken through a foreign branch cannot be offset against petroleum mining income from New Zealand. That will bring New Zealand’s taxation of petroleum mining revenue into line with the practice of a number of other countries," Cullen and Dunne announced on Tuesday.

The changes will be included in the next taxation bill and, once enacted, will be effective from March 4th 2008 - the date of the announcement. Expenditure incurred before that date will not be affected by the changes.

The government intends to consult with the petroleum mining industry on the details of the planned changes.

The ministers noted that New Zealand oil and condensate production is at levels not seen since the 1990s, with four major developments in production or due to begin within the next 12 months. They estimated that over the next ten years, the gross revenue from petroleum mining in New Zealand will be about NZD20 billion (USD15.9 billion).

“It is therefore essential to ensure that New Zealand receives its proper share of benefit from its petroleum resources,” they argued.

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