Ireland To Review Oil And Gas Tax Breaks
17 May 2013
Posted by: Author: Jason Gorringe
Source: Jason Gorringe (Tax-News.com, London)
The Irish Government is to seek independent advice on the "fitness for purpose" of the country's taxation of oil and gas exploration activity.
Energy Minister Pat Rabbitte made the announcement in a speech to parliament on the publication of a new report, titled "Offshore Oil and Gas Exploration." The Joint Committee on Communications, Natural Resources and Agriculture took evidence from a range of parties, and the resultant report makes eleven recommendations. According to Rabbitte, the issue "that has generated the greatest level of comment relates to the tax terms that should apply in the case of future commercial discoveries."
The Committee urges a near doubling of the existing tax rate applicable to petroleum production. Since a 2007 review, all new exploration licenses have attracted a profit resource rent tax of up to 15 percent, on top of a 25 percent corporate tax rate. Rabbitte regards the committee's proposals as "a fundamental re-positioning" that would bring Ireland's tax regime closer in line the UK's, and in the case of highly profitable fields, see the rate rise above Norway's.
The Minister's concern is that it is unrealistic to "expect Ireland to have Norwegian style tax rates without first having Norwegian levels of commercial discoveries." He believes that the recommendation is not a logical corollary of the Committee's own reasons for proposing tax changes. These are "high oil prices, the impact of advances in technology on exploration success rates, the fact that not all regions with petroleum potential are politically stable locations for investment; and, finally recent positive indications from exploration off Ireland’s south coast."
Rabbitte argued that the potential impact of recent drilling in the Barryroe well should not be overestimated. Although it would be Ireland's first commercial discovery in nearly 20 years, this "would not by itself make Ireland the new North Sea." He stressed that drilling levels in general remain very low, and that high oil prices and new technologies "do not make investing in Irish offshore exploration more attractive than investing in the North Sea or elsewhere."
Rabbitte will accordingly seek further independent expert advice, with the aim of ascertaining "what level of fiscal gain is achievable for the State and its citizens and, equally important, on the mechanisms best suited to produce such a gain."