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Ireland Plans Higher Taxes On Offshore Petroleum

by Jason Gorringe,, London

24 June 2014

The Irish Government is to hike the top tax rate payable on offshore petroleum exploration and production, to ensure that the State reaps more revenue from future licensees.

Energy Minister Pat Rabbitte is to act on recommendations made by sector experts Wood Mackenzie in a report commissioned by the Government. The Government sought independent advice on the appropriateness of Ireland's fiscal terms, and estimates on how much more revenue could be drawn from the sector.

Rabbitte said that he has sought the Government's agreement that Ireland's oil and gas fiscal terms should be revised along the lines suggested in the report. He said he does not wish to see any retroactive changes made to the terms applied to existing exploration authorizations.

Wood Mackenzie recommended that Ireland should maintain a concession system, so that the industry, rather than the State, bears the risk associated with investing in exploration. In the long run, however, while it said a form of production profit tax should continue to apply, it should be revised for discoveries made under future licenses.

Under the proposals, the proposed production profit tax would be charged on a field-by-field basis, with the rate varying according to the profitability of the field.. It would include a minimum payment at a rate of five percent, which would function like a royalty. The revised rates would be higher than the Profit Resource Rent Tax currently in place. The overhaul would result in a maximum rate of 55 percent in the case of new licenses, compared with a maximum rate of 40 percent under the present regime. The corporation tax applying to petroleum production would remain at 25 percent.

Rabbitte said: "By acting now and setting out Government policy on this issue, it is my intention to communicate a clear message in relation to the stability of Ireland's fiscal regime for the oil and gas exploration sector. For existing licenses no changes are proposed."

"For future prospective license holders, a clear regime is being set out and the rationale for that regime has been explained. This should further engender industry confidence in the stability and predictability of Ireland's oil and gas fiscal terms and allow the industry to focus on effective and timely exploration effort."

TAGS: environment | Energy | tax | business | Ireland | corporation tax | oil and gas | extraction tax | offshore | tax rates | tax reform

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