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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.

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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
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
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
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

australia developments and hot topics1
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