Terence Flanagan (Dublin North East, Fine Gael)
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Question 764: To ask the Minister for Communications, Energy and Natural Resources the rationale for his policy towards exploration profits in terms of pursuing taxation rather than a royalty system; and if he will make a statement on the matter. [18899/12]

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 a 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 based system where payments are linked to the actual volume of production and do not take account of differences in development cost or actual profitability.

As a tax based system offers greater predictability in terms of the potential return on investment, it is a more appropriate approach for a country such as Ireland that is seeking to attract a higher share of mobile international exploration investment. 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 through 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.