Post on 05-Apr-2017
transcript
Taxation regime for oil & gas industry in Romania
www.pwc.com
Andreea MitiritaTax & Legal Services DirectorPwC Romania
PwC 2
Agenda
24 March 2017Taxation regimes for oil & gas industry
Overview of tax systems applicable in upstream (oil and gas industry)
Specific conditions of oil and gas industry in Romania
Taxation regimes for oil & gas industry3PwC
Overview of tax systems applicable in upstream (oil and gas industry)
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Taxation regimes for oil & gas industry4PwC
Of the three types of fiscal regimes applicable, in OECD countries the dominant one is Concessionary (including Romania)
Concessionary (CC)1
Production sharing agreement (PSA)
2
Service Contracts (SC)3
CC
PSA/ SCSC
PSACC / PSACC / SC
* Countries indicated in grey were not analysed
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CC / PSA/ SC
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Characteristics of concession type systems
Tax base System Description Profit linkage
Revenue
Flat rate
o Single royalty rateo Discourages investments in marginal
fields (with small productions/difficult conditions)
Minimum
Sliding scale
o Production- based – dependent on the volume of production per field
o Price – based – dependent on the prices of oil and gas
Medium to High
Profit
Flat rate - supplementary
o Supplementary tax on profit, additional to regular corporate income tax, with deductions for different types of fields
High
R-Factor
o Royalty / hydrocarbon tax rates increase when ratio between cumulative revenues and costs of project is higher than defined thresholds
Maximum
Mixed (revenue and profit)
o Tax on both revenue and profit, based on a combination of the 4 systems from above.
Medium to Maximum
Beyond the pure financial analysis, the use of each system must also take into consideration the complexities of implementation.
Where Romania is
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Where Romania might be
Taxation regimes for oil & gas industry6PwC
Issues considered System based on revenue System based on profit
The impact on state revenues Certainty of revenue
State revenues are not certain, due to the fact that they depend on the profit obtained from fields exploitation
Time record of revenue Since the start of production Later, after making profit
Challenge of implementing Reduced efforts for monitoringHigh administrative efforts for monitoring and control, because usually it involves determining profitability.
Tax system based on revenue versus based on profit
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Taxation regimes for oil & gas industry7PwC
Specific conditions of oil and gas industry in Romania
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In Romania conventional deposits have a high maturity and a natural decline accentuated
Natural decline of oil production is about 10% per year
To compensate the natural decline, major investments are needed in production capacities
Source: BP Energy Statistical Yearbook 2016
824 March 2017Taxation regimes for oil & gas industry
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
0.0020.0040.0060.0080.00
100.00120.00
Evolution of oil production(Mbbl / year)
104 114
53
3137
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
-
10.0
20.0
30.0
40.0
Evolution of natural gas production(bcm/year)
10
23
33
28
11
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Romania Gas production trends & forecasts
Source: BMI Romania Oil and Gas report – Q2 2017
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2016e 2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f02468
10121416
9.9 9.9 9.7 9.4 9.1 8.8
13.114.6 14.8 14.4 14
Dry natural gas production, bcm
Black Sea discoveries:
OMV & Exxon Mobile
• Domino Project in the Neptune block ;
• Estimated volume 42-84 bcm; Investment decision: 2019 ;
• Estimated production: 2021;
Lukoil
• Lira -1 discovery in Trident block• Estimated production 30 bcm; • Investment decision: 2016 (up to this
date no new info) ;• Postponement reason: waiting for a
fully liberalised market
New licensing round:
• potentially 2017• NAMR – 11th tender expected for:
o 28 onshore blockso 8 offshore Black Sea blocks
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Tax principles
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Stability and predictability
Flexibility and progressiveness
Competitiveness
Neutrality
Certainty of taxation
Efficient administration
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Royalty(per field)
Production sliding scale (for oil in ‘000 tonnes / quarter;
for gas in mn cm / quarter)
Production sliding scale on an annualised basis1
(for oil in ‘000 tonnes / year;for gas in mn cm / year)
Oil 3.5% - 13.5%
Range 1: Small fields <10 – 3.5%Range 2: Small fields 10-20 – 5.0%
Range 3: Medium 20-100 – 7.0%Range 4: Large >100 – 13.5%
<40 – 3.5%40-80 – 5.0%
80-400 – 7.0%>400 – 13.5%
Gas 3.5% - 13.0%
Range 1: <10 – 3.5%Range 2: 10-50 – 7.5%
Range 3: 50-200 – 9.0%Range 4:>200 – 13.0%
<40 – 3.5%40-200 – 7.5%
200-800 – 9.0%>800 – 13.0%
Romania - Revenue based royalties*
*no differentiated rates for onshore vs offshorePayable by 25th of the month following the quarterRoyalties rates were introduced in 2002 and were not amended since
A tax system should be stable and predictable
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Supplementary tax on supplementary revenues* from liberalization of prices for natural gas, with:
• Allowances for investments, capped at 30%
• Deduction of royalties paid
* Introduced as of 1 February 2013 **Introduced as of 1 February 2013
*** Introduced as of 1 January 2014 and abolished as of January 2017
These are transitional taxes until the upstream fiscal regime enters into force.
Tax on revenue from crude oil**
0.5%
Tax on special construction***
1.5%/ 1%60%
A tax system should be stable and predictable
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Romania considers a new tax system for the upstream industry
A mixed system based on revenue and profits
Royalty rates potentially adjusted and differentiated for onshore and offshore
Supplementary tax on profits (with allowances)
A tax system should be flexible and progressive
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16% CIT rate
No ring fencing rules
Deductions for provisions &
reserves
Specific depreciation rules
for upstream
Royalties deducted for corporate tax
purposes
A tax system should be competitive – Corporate Income Tax features
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Joint venture agreements
Exemption of reinvested profit
R&D allowances
Tax consolidation
allowed only for PEs of foreign
companies
Tax on capital gains from
disposal of right over natural resources
IFRS and RAS for accounting
purposesLosses can be carried forward
for 7 years
A tax system should be competitive - Corporate Income Tax features
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A new tax system should not negatively impact ongoing investments
Viability of projects should be protected
• Ring fencing rules for upstream activities• Rules for determining the tax base
Tax provisions should be clear and transparent
The tax system should be easy to administer
A tax system should be neutral, certain and easy to administer
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What attracts investors?
1724 March 2017Taxation regimes for oil & gas industry
Privatisation
New concessions
Transfer of concessions
Cooperation with authorities
Gas price liberalisation
Infrastructure
•2004: OMV Petrom;•2013: Romgaz - listed on the stock exchange (BVB, LSE);
•Tender rounds for new concessions; •New potential round in 2017;
• Farm in, Farm out, Joint Venture agreements;• Enhanced production contracts;
•Open consultation with market players, both with the regulator (NAMR, NAER) and tax authorities (Ministry of Finance, NAFA);•The Romanian Government negotiated a calendar for the gradual liberalisation (despite EU restrictions);
•Undeveloped infrastructure, however investments are envisaged.
Tax system•Concession agreements (royalty rates);•Stability clause;
PwC
Thank you!
Andreea MitiriţăDirector, Tax and Legal ServicesPwC Romania
Tel.: +40.21.225.3727
+40. 0722.942.017
E-mail: andreea.mitirita@ro.pwc.com
Thank you!
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