NZ IRD closes tax loophole
The Inland Revenue Department believes it has shut down a massive loophole that was increasingly used by foreign-owned oil explorers operating in New Zealand.
“Although it is not possible to estimate this risk accurately, officials estimate the potential revenue at risk is approximately $3 billion during the next 10 years,” IRD policy officials say. The change is being quietly shepherded through in a massive tax bill reported back to Parliament early this month by the Finance and Expenditure Select Committee.
The changes, which apply retrospectively to March 4, 2008, provoked only muted oil industry defence.
The Petroleum Exploration and Production Association of New Zealand last year raised “serious concerns” about moves to plug the loophole, saying that would stop “certain multi-national oil and gas companies with profitable New Zealand operations undertaking foreign oil and gas exploration through New Zealand subsidiaries, and offsetting the losses from the foreign activities against profits from the New Zealand operations”.
The list of current taxpayers potentially benefiting from this arrangement is short, and appears to consist mainly of Shell and the Austrian oil giant OMV, both of which have substantial New Zealand income through production at the Maui gas field, a natural gas resource of global significance that has produced for the last three decades. Shell owns 84 per cent of Maui, and OMV 10 per cent.
The urgency was heightened by the fact major new fields in New Zealand were coming into production, which meant significant future tax revenue could be at risk, senior tax officials say.
IRD acted last March, towards the end of the production boom at the Tui oilfield, to shut off the tax tap.
Tui is 87.5 per cent-owned by Australian-based oil companies AWE, Pan Pacific, and Mitsui E & P.
Based on the $365 million income from the field in the two years to June 2009 for locally listed, 12.5 per cent-Tui owner, New Zealand Oil & Gas, the Australian owners will have booked around $2.55 billion in the last two years.
AWE’s Gary Marsden says that until recently, there was no New Zealand income against which any such offshore exploration expenses could have been charged. ”There was no need to do anything like that.”
But it was possible that with a 42.5 per cent interest in the Tui field, which produced prodigiously in 2008, at a time when oil prices were at international highs, “we may have used New Zealand for that,” Marsden says.
Australia’s Origin Energy may also have anticipated expensing Australian and other third-country exploration against income from the Kupe gas field, in which Origin has a 50 per cent interest and which is due to start producing late this year. Mitsui also holds 4 per cent of Kupe.
Others, such as Australian-registered Cue Energy, have no significant New Zealand revenue, but can expect that to change if and when the Maari field dubbed in one recent Australian share tip sheet as “the Saudi of the South” comes into commercial production.
Cue chairman Richard Tweedie agrees there may have been a possibility of using such a mechanism in the future, but confirmed that Cue 21.63 per cent-owned by New Zealand-based Todd Energy (where Tweedie is CEO) was not at present a New Zealand taxpayer. Approached for comment, Shell New Zealand said it was company policy not to discuss tax matters. Origin says it ”had not been a beneficiary of the tax regime”.
OMV had not responded to inquiries by deadline.
The tax concession did not work for New Zealand-based oil explorers with offshore interests, so companies such as Greymouth Petroleum and New Zealand Oil & Gas were unable to benefit.
Source: Stuff.co.nz July 17, 2009
