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Irish Independent: Oil tax hikes on way for energy giants

Published: Aug 01, 2007

THE State is to get hundreds of millions more from energy giants who strike oil and gas off our shores.

The Government, stung by accusations of giving the likes of Shell cheap access to natural resources, has decided to adopt a much tougher stance on profits.

In future multi-national oil and gas companies will be hit with a large tax hike on profits from future finds.

Instead of paying 25pc on profits from a field, they will have to pay, in some cases, as much as 40pc tax on the profits.

The move has been prompted, in part, by the controversy over the expected low tax return for taxpayers from the controversial Shell gasfield at Corrib which has been dogged by protests.

The new measures were approved by the Cabinet this week.

They represent the first changes from the controversial terms brought in by Ray Burke and Bertie Ahern in the late 1980s and early 1990s.

Speaking to the Irish Independent Natural Resources Minister Eamon Ryan said the change could be worth hundreds of millions extra to the taxpayer.

The Green party minister is deliberately bringing in the change ahead of granting a series of exploration licences next month.

But the new regime will not be retrospective. So it will not apply to the controversial deals such as the agreement with Shell for the Corrib gas pipeline.

The minister said he would be “uncomfortable” with granting new licences for drilling off the Western sea board without changing the terms. He said the government “had a duty” to bring in the new measures to change the terms.

“Our take would have been very low. This at least provides a guarantee to the taxpayer.”

The existing rules were brought in by disgraced former minister Ray Burke in 1987 and added to in 1992 by Taoiseach Bertie Ahern, then Minister for Finance.

Mr Ryan said he is not criticising anyone in Fianna Fail for bringing in the old rules.

“I was pleased to get it through. I’m not out hammering anyone,” he said.

Under the new rules, the rate of tax to be paid will rise in line with the profits.

Where the level of profit is one-and-a-half times the capital cost of the exploration and production, the tax will rise to 30pc. Where the profit is three times the capital cost, the tax rises to 35pc.

Where the profit is four-and-a-half times the capital cost, the tax rises to 40pc.

“At least we know the State in tax terms would get a larger return than previously,” the minister said.

He believes we could be looking at taking in hundreds of millions more in tax in the event of a major oil or gas find.

The government believes the case for tougher terms is compelling. It follows a review of the exploration licensing terms initiated a year ago by the previous minister Noel Dempsey. Minister Ryan believes the new measures will ensure the State will get a higher return, while maintaining the incentive for exploration. They will put Ireland more in line with other European countries.

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