Australian American Chamber of Commerce Energy Conference

1. Australian American Chamber of Commerce Energy Conference Australian Oil & Gas Fiscal Regime Michael Anderson, Ernst & Young LLP 30 January 2014 – Houston

2. 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)

3. 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

4. Australia developments and hot topics • 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 Exploration expenditure • 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 • 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 Other

5. Australia developments and hot topics • 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 Base erosionprofit shifting • New transfer pricing legislation implemented focusing on the arm’s-length conditions • Increased transfer pricing enforcement activity by Australian Taxation Office (ATO) Transfer pricing • 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 Audit activity