introduction
The issue of taxing oil companies has attracted particular interest since it became known that the government would have to raise around $ 5.391 billion to pay the tax debt of Esso’s two partners in the Stabroek bloc – CNOOC and Hess. Tax profit equivalent to $ 16.175 billion in 2020. For the reasons stated in column 90, Esso, the senior partner and operator of the Stabroek block, reported a loss carryforward that is expected to be offset in future years. Despite the tendency towards financial engineering and creative accounting known in the industry, Esso will also show a profit at some point and also require Guyana to pay taxes.
Guyans know the gay dedication with which our governments give tax exemptions to the powerful, beneficiaries and influential – the youngest group to be rewarded with such fortunes are shareholders in private hospitals. What is hard for Guyaners to accept, however, is that an agreement like the 2016 Agreement can place a company under the income tax laws of Guyana, including the Corporate Income Tax Act, and two paragraphs later the burden of taxpayers to pay those taxes. But that is exactly what the 2016 agreement and similar agreements did. And which the IMF’s Fiscal Affairs Department in a 2018 Technical Assistance Report both asks and answers in a peculiarly didactic style as to whether the after-tax breakdown is unique in Guyana and whether it has advantages.
Noise and nonsense suppliers
The authors of the report – Thomas Baunsgaard, Honore Le Luche and Diego Mesa Puyo – are people whose testimonies cannot be easily dismissed. At least two of them hold high offices and would be the exact opposite of noise and nonsense agents who, according to our learned professor, “obscure, conspire and conspire the reality of today’s oil sector and (sic) pursue very outdated narratives”.
This column examines what these respected and knowledgeable people wrote about “after tax sharing,” their description of the mechanism by which the government collects the tax payable by oil companies on their share of profits under a production-sharing arrangement from their sharing. Here is her answer to her question about uniqueness and benefits:
“No, this system is used in many production countries such as Trinidad and Tobago, Azerbaijan and Qatar, to name just a few. Some of the benefits of the pay-on-behal-of system are that it provides more certainty about expected government revenues from oil projects and eases tax planning, while providing both the government and the contractor with physical stability against changes in corporate tax rates. ”
This must be seen as just as nonsensical a proposal as any that the IMF has published on its behalf for decades. How could one ask, does this giveaway bring security to government revenue or prevent tax planning when the whole pay-on-behalf-of (POB) idea is all about tax planning – so that oil companies can get a certificate issued by Allegedly but not paid a tax to the tax office so that they can claim a tax credit in their home country? And stability for the government? In fact, Budget 2021 does not appear to recognize that the government is aware of this liability and is not making arrangements for its payment. It would be unlawful for the government to perform this obligation to oil companies outside of an appropriation law and could explain the authorities’ silence on the matter.
IMF examples
The practical examples of the IMF team are only slightly more sustainable than their conceptual logic. The authors are right about Trinidad and Tobago, but they do not acknowledge that this is a decades-old legacy that is no longer widespread and was never applied in any agreement after the discovery. With regard to Azerbaijan, the claim is effectively denied by an academic in the country and by Deloitte, a Big Four accounting firm. In an article in the July 2015 issue of the Journal of World Energy Law and Business, Nurlan Mustafayev states that contractors and subcontractors are subject to taxes under the country’s production-sharing agreements. There are no pre-contract costs, capital expenditure is limited to 50% of gross production and the cost recovery base and taxes are earmarked. Deloitte goes even further, citing a range of tax rates from 20% to 32% that oil companies have to pay. Both indicate that each agreement is the subject of a separate parliamentary law, and neither mentions the government of that country, which regulates the tax obligations of oil companies.
And for Qatar, PWC, another of the Big Four accounting giants, sums up that country’s tax systems on oil deals as follows: “In general, a corporate tax rate of at least 35% applies to companies doing oil deals …” In fact, Qatar is off explorations – and Production Sharing Agreements (PSAs) moved to Development and Tax Agreements (DFAs).
The dangers of comparison
While comparisons can be useful benchmarks, ignore the overall package and relevant local laws at your own risk. In the case of Guyana, two such laws are particularly relevant: the Petroleum Exploration and Production Act Cap. 65:04 (PEPA) and the Financial Administration and Audit Act (FAA). Section 51 of the PEPA provides for changes to four laws relating to licensees under a production sharing agreement. The laws are the Income Tax Act, the Trade Tax Act, the Corporation Tax Act and the Real Estate Tax Act, which also extends to the Capital Gains Tax Act. In violation of Section 10 of the PEPA, which allows agreements that are not inconsistent with the law, the Minister went beyond his powers to extend concessions to those who do not hold such licenses, including those who are not residents of Guyana or operate a business or business there.
The Granger administration, which signed the 2016 agreement, and the PPP / C administrations before and after, will have an enormous job of justifying whether and how a change or inapplicability of a tax law can mean a repeal of a legal obligation under which it is required a tax The liability payable to the state ends when the state pays this tax. The FAA in particular seems to be taking an insurmountable hurdle. It assumes that remission, concessions or waiver are expressly provided for in a tax law or an ancillary law. It seems that the oil companies may have thought that the vaguely worded Ordinance No. 10 of 2016 implementing the Petroleum Agreement would allow the trick of paying on behalf of them. But the FAA is also concerned with that. It provides that no regulation (or other subordinate legislation) is in force unless the law under which the subordinate legislation was enacted specifically allows for enactment, concession or waiver. The order is placed under the PEPA, which does not even tacitly, let alone explicitly, allow the POB formula.
Conclusion
It seems clear that the tax article of the treaty contains several provisions that do not pass the test of “not inconsistent” with the law. The government must be aware of this. Ultimately, she has to decide whether she’s on the side of the law or on the side of Esso and its partners. The choice should be easy. But logic and law never apply to politics in this country, even if it requires considerable revenue for the state.