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Oil companies build $238bn future tax buffer

April 13, 2017

Oil companies build $238bn future tax buffer

Ben Butler, The Australian, 13 April 2017

Oil and gas companies have built a $238 billion shield against future resource tax bills through investment in megaprojects such as the Gorgon field, tax statistics show.

Australian Taxation Office figures released yesterday show “exploration expenditure” claim­ed by industry players has soared from $970 million in 2003-04 to $238bn last financial year, with the vast bulk run up since 2012.

Companies are allowed to carry the expenditure forward and claim it as a deduction against the Petroleum Resource Rent Tax, which is now under review by the government and the Senate amid plummeting receipts.

Resources rent tax paid by the industry has halved in three years, falling from $1.79bn in 2013-14 to $845m last financial year, the tax statistics show. Of 62 oil and gas projects under way in Australia, only six had any resources rent tax liability.

Alarmed by the revenue slide, Scott Morrison ordered a review of the tax in November. The review is being conducted by veteran public servant Michael Callaghan, who is to report back in time for his findings to be taken into account when framing next month’s budget.

The Senate’s powerful economics committee is also conducting a review of the PRRT as part of a wider probe into corporate tax avoidance that has galvanised crossbenchers to demand tweaks that bolster revenue.

The new figures follow hot on the heels of concerns over corporate tax minimisation in the oil and gas industry in general flagged by the Australian Taxation Office in its submission to the Senate inquiry last week.

In its submission to the Callaghan review, the ATO said resources rent revenue peaked in 2001 at $2.4bn and has been falling ever since.

In recent years individual PRRT bills have fallen dramatically.

BHP’s Bass Strait operation paid $293m in 2015, the most ­recent year for which ATO tax transparency data was available, compared to about $560m the year before.

Woodside’s payments tumbled from $85.8m to $31m over the same period.

The surge in carry-forward expenditure claims since 2012 was primarily due to the extension of the rent tax regime to cover onshore and North West Shelf projects, the ATO said in its submission.

It said one key risk to the ­revenue reaped by the tax was companies pumping up their ­exploration expenditure “by misclassifying petroleum project ­development expenditure as project exploration expenditure, and transferring exploration expenditure of a petroleum project that does not satisfy the applicable transfer rules”.

Industry players are unanimous that the tax is working as intended and have warned that any changes might scare off future ­investment.

However, a looming gas supply crisis on the east coast amid burgeoning exports through Curtis ­Island, near Gladstone in Queensland, has convinced key crossbencher Nick Xenophon the PRRT must be changed.

“I think these figures show that the design of the PRRT is broken and it needs to be redesigned to drive more gas into the domestic market and put downward pressure on electricity prices,” Senator Xenophon told The Australian.

“We are facing de-industrialisation of our economy if gas prices keep skyrocketing.”

He declined to say how he would like to see the PRRT changed. “I want to see the details of the Callaghan review,” Senator Xenophon said.

A spokeswoman for Mr Morrison tied the Callaghan review to a wave of attacks on multinational tax avoidance, including laws targeting tech giants such as Google and Apple, that she said would “ensure greater integrity of Australia’s tax system”.

“The government will respond to the review in the near future,” she said.

As The Australian reported last week, separately to its concerns about the PRRT the ATO is investigating the financing of the Chevron-helmed Gorgon project.

Chevron is a familiar target for the ATO, which has hit the company with a $250m tax bill over ­financing from its offshore affiliates.

In a landmark ruling the Federal Court upheld the validity of the bill. An appeal by Chevron is currently awaiting a ruling from the Full Court.

Speaking to The Australian last week, deputy tax commissioner Mark Konza stressed the ­importance of getting gas industry tax settings “right today”. Mr Konza said: “There are a lot of ­developments in oil and gas, they have long tails — we’re talking 25, 40 years, 50 years, some of these projects, and what we’re trying to make sure is that we leave a good legacy for citizens in the coming decades that the right amount of tax will flow from those ­industries.”