Finian McGrath (Dublin North Central, Independent)
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Question 139: To ask the Minister for Communications, Energy and Natural Resources the royalties or taxes the State will receive from the Corrib gas field; and if he is satisfied with the agreement made by a former Minister (details supplied). [5711/11]

Pat Rabbitte (Dublin South West, Labour)
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Ireland's fiscal terms are tax based and do not include royalty payments. In 1987, Ireland followed the lead of other countries such as the UK and Norway in moving away from a royalty based payments system to a tax based system. Under the tax based system the return to the State is linked directly to the profitability of the individual oil or gas field, as compared to a royalty system where payments are linked to the actual volume of production and does not take account of differences in development cost or actual profitability.

The taxation rates which apply to profits from petroleum production are set out in the 1992 and 2008 Finance Acts. Profits from petroleum production arising from exploration licences granted prior to 2007 are taxed at a rate of 25%. This is the rate that will apply in the case of profits from the Corrib Gas Field. A comprehensive review of Ireland's licensing terms was carried out in 2007 by independent economic consultants, following which both the fiscal and non-fiscal licensing terms were revised. The revised terms, which were put into effect in the 2008 Finance Act, apply to all exploration licences issued since 1st January 2007 and provide for a new profit resource rent tax of up to 15% in addition to the 25% corporate tax rate previously applying. The revised terms ensure that the return to the State would be up to 40% in the case of very profitable fields.

The direct financial return to the State from the Corrib gas field will be through the 25% tax on profits. The level of profits from the Corrib gas field will depend on a combination of factors including the volume of recoverable gas, the cost of developing and operating the infrastructure, the price of gas over the life of the field, together with the timing and profile of production. The Corrib gas field will also strengthen Ireland's security of energy supply and at peak production will provide approximately 60% of Ireland's annual gas needs. During its development phase the Corrib Project has contributed significantly to creating employment, both in the Erris region and nationally.

The tax regime applicable to petroleum production is a key factor in attracting internationally mobile exploration investment to Ireland. The tax terms offered to companies reflect the fact that Ireland's petroleum potential is largely unproven and that Ireland needs to encourage a higher level of exploration activity. Ireland's petroleum taxation rate is deliberately pitched at a level that is consistent with countries such as France, Portugal and Spain, who like Ireland have limited petroleum production, rather than with major petroleum producers such as Norway or the UK.