Australian American Chamber of Commerce Energy Conference

Australian American Chamber of Commerce Energy Conference

Australian Oil & Gas Fiscal Regime Michael Anderson, Ernst & Young LLP

30 January 2014 – Houston


Australian tax landscape snapshot

► Corporate tax rate of 30%, proposed to be reduced to 28.5% from 1 July 2015 but with introduction of 1.5% parental leave levy

► 2011-12 fiscal year O&G directly contributed A$8.8bn of A$350bn tax revenue► Australia imposes direct income tax and various indirect taxes, including:

► Goods and services tax (“GST”)► Excise and customs duties► Payroll tax (varies by state) and Fringe Benefits Tax taxes paid by employers ► Fringe benefits tax on noncash employee benefits► Stamp Duty (varies by state)

► Specific O&G resource taxes, include:► Petroleum Resource Rent Tax, recently expanded to include onshore projects► State/Territory (non- Federal) based royalties

► Level of taxation in Australia as a proportion to GDP has moved in a relatively small range over the last two decades► But corporate tax contribution has been slowly declining

► Tax-to-GDP ratio is low by international standards compared with other OECD countries (5th lowest, USA 3rd lowest)


Tax Policy

► Change in federal government from Labor to Coalition in September 2013► Coalition campaigned on improving business certainty in Government actions

► Maintaining electoral promises such as repeal of mineral resources rent tax and removal of carbon tax

► Release of its position regarding 96 unlegislated tax measures going back to 2001► Reducing / streamlining regulations that can act as a brake on investment

► Government sees the resources sector as an important contributor of total tax revenues to achieve Budget surplus in 4 years. The following measures seek to protect the revenue base► Removal of immediate deduction for the acquisition cost of exploration assets to a deduction

over 15 years or effective life► Narrowing the interpretation of exploration expenditure► R&D removal of benefit for greater than $20bil turnover► Repeal loss carry back rules

► Specific reforms or measures to encourage investment include► Removal of carbon tax► Removal of mineral resource rent tax► Exploration development incentive, but no movement to introduce flow through mining

company


Australia developments and hot topics

Exploration expenditure

► Proposed repeal of immediate deductions for petroleum titles first used for exploration

► Definition of exploration expenditure, particularly treatment of “feasibility” and front end engineering design (FEED) costs

► Recent case law (Esso Australia Resources, ZZGN)► Draft ATO ruling regarding the “definition” of exploration for

PRRT purposes► Time writing and cost allocation systems

Petroleum resource rent tax

Other

► Amendment of TARP definition to bring in mining information and other non-asset, land linked intangible value drivers

► General anti avoidance – asset leasing structures► Tax corporate governance


Australia developments and hot topics

Base erosionprofit shifting

► Introduction of transparency provisions publicly reporting taxpayer details

► Reductions to thin capitalization safe harbor limit and proposed foreign affiliate debt dumping rule

► Focus on what constitutes taxable activity

► New transfer pricing legislation implemented focusing on the arm’s-length conditions

► Increased transfer pricing enforcement activity by Australian Taxation Office (ATO)

Transfer pricing

Audit activity

► Resource sector, private equity and M&A activity have seen continued audit activity

► Active use by ATO of GAAR to attack perceived aggressive taxation arrangements

► ATO has used court proceedings to secure foreign controlled monies perceived at flight risk in tax disputes

Australian American Chamber of Commerce Energy Conference

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