Written answers

Tuesday, 26 February 2008

Department of Finance

Offshore Exploration

9:00 pm

Photo of Michael KennedyMichael Kennedy (Dublin North, Fianna Fail)
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Question 104: To ask the Tánaiste and Minister for Finance his views on the tax incentive schemes which exist for oil exploration companies operating in the UK and Norway; if similar incentives will be brought in here to reduce the levels of risk experienced by domestic companies and to encourage further exploration off Irish shores; the incentives currently in place for same; and if he will make a statement on the matter. [8072/08]

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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In this year's Finance Bill, I have introduced new tax provisions in relation to profits derived from petroleum exploration and production activities. A new tax called a "profit resource rent tax" will apply at rates of 5%, 10% or 15% in addition to the corporation tax rate of 25% that currently applies to profits from petroleum activities. It will apply when profits exceed certain defined levels. This will be worked out by a formula that relates the profits from a petroleum field to the capital investment in the field. The new tax provisions give effect to the Government Decision of 30 July 2007 that a new regime would apply in relation to petroleum profits from discoveries made from 2007 onwards.

In addition to the new profit resource rent tax, the Government also agreed last year that the tax relief in relation to expenditure on activities relating to exploration, development and abandonment should continue on the basis that it is ring-fenced to such petroleum –related activities undertaken by the companies concerned and it should continue to be allowed on a 100% first year basis.

The Government Decision of last year and the Finance Bill 2008 provisions arise from the recommendations of an external review of Ireland's petroleum exploration and production licensing terms which was carried out by Indecon International Economic consultants. That review, in arriving at its conclusions and recommendations, examined the fiscal regimes for oil and gas exploration and production in other countries, including the UK and Norway. I understand that the report of the review entitled "Expert Advice on Review of Irish Petroleum E&P Licensing Terms" is available on the Department of Communications, Marine and Natural Resources' website.

There is a compelling case for increasing the tax-take in the future from more profitable oil and gas fields. Internationally, licensing terms are being amended in favour of national governments in light of increasing oil prices and fewer prospect areas available for exploration. The overall objective of the Finance Bill changes being proposed is to ensure that the State will get a higher return in the case of more profitable oil and gas fields while continuing to encourage the industry to invest in exploration for oil and gas offshore Ireland. There is a balance to be struck in revising the taxation policy as it applies to these activities. This balance must ensure, on the one hand, that Ireland gets an appropriate return for the exploitation of its resources while, on the other, giving sufficient encouragement to those who would search out and extract those resources. I think that the revised arrangements achieve that balance.

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