Home' Trinidad and Tobago Guardian : October 24th 2013 Contents OCTOBER 2013• WEEK FOUR www.guardian.co.tt BUSINESS GUARDIAN
ENERGY | BG9
T&T needs to better manage its tax system
which would allow the country to maximise
greater use of the country s oil and gas
resources, said energy consultant Tony Paul.
This would allow T&T to reap its natural
patrimony while, at the same time, allow for-
eign energy companies which have the capital
and technology to exploit the natural resources.
"We are not managing our resources. To
start, we are not giving out contracts well. We
are not setting the right tax rate. We are not
even collecting the taxes. And now we are not
even spending the money we collect well,"
Paul told the Business Guardian last Thurs-
In September, bpTT issued a statement in
which it denied earlier allegations made by
Paul in a newspaper commentary that it was
not paying enough taxes.
"Recent statements alleging that bpTT does
not pay sufficient taxes or is late in making
such payments are misleading and of significant
concern. BPTT engages in an honest and con-
structive relationship with the Board of Inland
Revenue based on the principles of trust and
mutual respect," the statement said.
Paul argued even when T&T is collecting
taxes, it does so late.
"When BP paid those back taxes, those were
taxes from six years ago, just as the seven-
year statute of limitations was about to expire.
So not only are we not collecting taxes, we
are collecting it late. So the time value of the
money has depreciated and the companies are
happy. Or if they are collecting, they are col-
lecting those taxes late, like when Prime Min-
ister Kamla Persad-Bissessar received a US$159
million cheque from BP in 2011 for outstanding
payments from 2001-2006," he said.
BPTT denied this by saying: "That payment
came at the end of the regular statutory assess-
ment process which was conducted in an open
and transparent manner."
Speaking at a media conference hosted by
the Joint Consultative Council (JCC) in Sep-
tember, Paul said foreign energy companies
will "take advantage" of T&T if it allows those
companies to do so.
"Not one came in lower than the current
tax rate. But if we are stupid enough to take
it on, they will take advantage of us. We forget
we know this industry. We have been in this
business for 100 years. We understood and
we are regressing. Why? Because the compa-
nies are telling us and we are not doing our
own work," he said.
He used examples of other major oil pro-
ducers, like Venezuela and Nigeria, as examples
of countries which have raised royalties on
international energy companies without them
packing up and leaving.
Last month, for example, Venezuela signed
agreements with Indian oil company, Reliance
Industries, which include assessing opportu-
nities for the Ayacucho block and a joint ven-
ture for transporting crude oil from the Orinoco
"The reality is oil and gas taxation has many
factors and growing pains, and the level you
set is based on the ability of investors to make
money off it. The first consideration is the
geology. You do not see them pulling out of
Venezuela or Nigeria. It is not just the tax rate,
it is how much oil you have and how cheaply
you can get it out. If I can hide my taxes, and
I know the Government is not really collecting
taxes, do you think I care what the tax rate
is?" he asked.
Paul s opinion is different to the position
adopted by the T&T Energy Chamber, which
in a pre-budget statement, argued that T&T s
tax regime performed "poorly" and is only
more competitive than Venezuela, Bolivia and
"The Wood McKenzie 2011 fiscal terms
report showed that T&T performed poorly as
it relates to the competitiveness of its tax
regime, with a rank of 99 out of 103 jurisdic-
tions," the Energy Chamber said.
Referring to the Petroleum Taxes Act, Paul
said under the second schedule (Chap 75:04),
a mechanism is prescribed for determining
the price that is used in computing royalty
and taxes due on the sale of petroleum (defined
as oil and natural gas) and petroleum prod-
Prices of crude oil, natural gas, petroleum
products and petrochemicals
5. (1) Subject to sub-paragraph (3) and para-
graph 5A, 5B and 5C for the purposes of this
Act the prices of crude oil, natural gas, petro-
leum products and petrochemicals is the actual
realised price in a sale transaction at arm s
(2) Where a sale takes place between affiliated
or related parties, it will be presumed not to
be an arm s-length sale.
(4) Where a sale transaction is not or is pre-
sumed not to be at arm s length, the board
shall substitute for the price reported the fair
market value as determined by the Minister.
"The Minister of Finance does not appear
to have any discretion, under law, to vary this
approach. Statements in the public domain,
including those made on the need to "re-acti-
vate" the Permanent Petroleum Pricing Com-
mittee (PPPC) during the presentation and
debate of the annual budgets in 2004 and
2010 lead to the reasonable conclusion that
the mechanism has not been followed for per-
haps ten years or more," Paul said.
He said the rationale for this mechanism
goes back to the early 1970s when foreign-
owned oil producing and refining companies
sold their product to affiliated companies at
lower than market value to reduce their profit
margin and tax liability in T&T.
"This practice, known as transfer pricing,
is common in the extractive industries globally.
The benefit to the companies is that their
marketing arms then sell the product or deriv-
atives at market prices and so retain more
profits for the parent company, usually sit-
uated in a tax haven," he said.
Paul said all the buyers of liquefied natural
gas (LNG) from Atlantic appear to be affiliated
to the upstream companies producing natural
gas, which leads one to conclude most LNG
sales from T&T are not at arm s length.
"That said, the Petroleum Taxes Act was
amended to allow for the Minister of Finance
to consider the contracts between parties in
LNG, that were necessary at the time of the
construction of the LNG plants. The issue
arises when one considers whether or not
natural gas, including LNG, is being sold at
the contract prices and to the contracted
market or going to more lucrative markets.
"Prior to 2008, about 80 per cent of T&T s
LNG was sold to markets in the United States.
Today, that number is around 20 per cent.
Assuming that the original markets represent
contract arrangements, it is reasonable to
assume that the 60 per cent now being sold
to new markets is being sold outside of con-
tract and at higher prices."
He said most of the natural gas is produced
under exploration and production licenses
subject to royalty at ten per cent of the gross
value and petroleum profits tax at 50 per cent
and unemployment levy at percentage of the
"The remainder of the gas is produced
under production sharing contracts, which
typically give the minister 65 per cent or more
of the profits. Since taxes have been paid,
one can assume that all costs were recovered,
so that any revenue received above the con-
tract or reported price (that is, the market
value) will represent 100 per cent profit and
so the Government share should, in all cases,
exceed 65 per cent.
"From a layman s point of view, the Min-
ister of Finance has no discretion to adjust
these rates without getting Parliament to
amend the legislation."
In September, the T&T Extractive Industries
Transparency Initiative Report (TTEITI)
released its report for the fiscal year 2010 to
2011, which showed that energy revenue for
the period 2007 to 2011 contributed 44 per
cent of the country s gross domestic product
The report is the first ever reconciliation of
the country s energy sector revenues and was
prepared by an independent EITI administrator,
comprising local-foreign accounting firm part-
nership, BDO Trinity Ltd and the United King-
dom s Hart-Nurse Group.
According to the executive summary of the
report, as of September 27, 2013, total payments
declared by the Government from the extractive
industry is TT$23,181.2 million.
"The energy sector contributes significantly
to the T&T economy. Over the last five years,
the energy sector has contributed on average
44 per cent of GDP, 46 per cent of Government
revenue and 85 per cent of export earnings,"
the TTEITI report said.
The biggest contributor to revenue for this
fiscal year was petroleum profit tax ($9.1 bil-
lion), which is levelled on both oil and gas
Supplemental petroleum tax, which is only
collected against oil production, was the second
highest ($4.2 billion).
T&T has tax issues
Anthony Paul, energy consultant
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