UK Oil Sector Companies Fleeing Offshore, Says Report

by Jason Gorringe, Tax-News.com, London

20 May 2002

According to a report in Friday's Guardian, UK-based oil sector companies are relocating their headquarters to offshore jurisdictions such as Cyprus and Panama in order to escape increasing taxes.

The article quotes ExxonMobil International's Chairman, Ansel Coudray, as revealing that the recent increase in profits tax for North Sea oil companies will inevitably lead to more cost cutting, which is likely to drive companies contracted by the large groups offshore in order to reduce overheads.

'The higher rate of tax will reduce ongoing profitability,' Mr Coudray said last week. 'Industry will have to respond to recoup some of that by pressing for even greater efficiency. Jobs will inevitably be lost and there will be fewer people engaged in identifying and developing new investment opportunities.'

Although ExxonMobil, which is the world's largest publicly quoted oil group, has not moved any of its operations offshore as yet, according to the Guardian, one of its main contractors, KCA Deutag Drilling, has recently relocated its headquarters from Aberdeen to Nicosia in Cyprus.

In addition to reducing general costs through lower income taxation, this move has meant that the organisation no longer needs to pay employer's National Insurance contributions (also increased in Gordon Brown's last budget) for the 1,400 staff employed offshore.

Concerns regarding the recent tax increases have also been expressed by major industry players such as the BG Group, and by US-based North Sea oil operators angered at a provision attached to the profit tax hikes which disallows financing costs when computing taxable income.

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