Lower for longer oil price outlook drives global change in tax structures

Singapore, 5 September 2016

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  • Government adjustments to tax regimes continue in wake of subdued oil price
  • Profit-based tax systems not immune to current price environment

A lower for longer oil price consensus is pushing more governments to rethink current tax structures and follow the example of those who have already made adjustments, EY says while launching its 2016 Global oil and gas tax guide.

The report, which summarizes the oil and gas corporate tax regimes in 86 countries — up from 84 in 2015 with the addition of Cuba and Iran — highlights national tax structure changes over the last year. Countries that introduced or adjusted fiscal regimes to capitalize on the previous high oil price environment, in particular, have had to act quickly in order to remain attractive.  

Alexey Kondrashov, EY Global Oil & Gas Tax Leader, says:
“Governments of oil and gas producing countries have had to reassess their tax structures and revise them accordingly to stay competitive. Many countries made immediate changes following the oil price crash while others delayed. Now, in a lower for longer price outlook environment, we expect to see more changes. A rebound in oil price won’t come to the rescue.”

Tax systems in Brazil, the US and Kazakhstan were among those particularly vulnerable to the oil price drop given the significant share of royalties in each country’s total tax burden. As a result, in the last year, Brazil has introduced a new royalty-like payment, the US has revised taxes in resource-rich states and Kazakhstan has made adjustments to decrease export duty.

Even countries with profit-based tax systems that generally adjust well to price fluctuations, including the UK, Canada and Norway, have made changes to ensure projects taking place within their borders remain economically viable.

Across Asia-Pacific, Sanjeev Gupta, EY Asia-Pacific Oil & Gas Leader observes that the lower-for-longer price environment has led to a sharp drop in oil revenue for producing countries in the region.

Gupta says: “However, amid the widening trade imbalance due to increasing consumption and declining output, maintaining the investment attractiveness is the top focus of governments in Asia-Pacific. China has increased its price threshold at which a special royalty is levied, but we have yet to see any major fiscal changes from other countries in the region. Meanwhile, concerns on resource nationalism across Southeast Asia has risen due to an increased interest on contract renewal.”

Kondrashov says: “Governments can’t depend on the return of a high oil price environment. Maintaining investment and interest in their domestic industries requires a regime with the flexibility to withstand any price point. The pursuit of a more sustainable model is evident around the world and won’t soon be abandoned.”


Notes to Editors

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About EY’s Global Oil & Gas Sector
The oil and gas sector is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and climate change all present significant challenges. EY’s Global Oil & Gas Sector supports a global network of more than 10,000 oil and gas professionals with extensive experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, downstream and oil field subsectors. The Sector team works to anticipate market trends, execute the mobility of our global resources and articulate points of view on relevant sector issues. With our deep sector focus, we can help your organization drive down costs and compete more effectively.

For more information, please visit ey.com/oilandgas.

About the report
The Global oil and gas tax guide summarizes the oil and gas corporate tax regimes in 86 countries and also provides a directory of EY oil and gas tax contacts. The content is based on information current to 1 January 2016, unless otherwise indicated in the text of the chapter.