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Tax demands for oil industry |
Tax disputes in both Ecuador and Venezuela have underlined how some South American nations are using tax rates to increase the revenue they collect from oil companies.
On March 31 Ecuador's congress voted to impose a 60% tax on "extraordinary profits" earned by foreign investors in the oil sector, before President Alfredo Palacio announced his intention to change the oil tax reform, hoping to make it more appealing to private oil companies. And conflict between the Venezuelan government and multinational companies is continuing, though it seems to be nearing an end.
If the Bill is passed as it stands in Ecuador, it could damage the country's reputation among international oil companies. Previous contracts signed with international companies such as Occidental, a US company, in the early nineties established a reference price of $15 per barrel. The legislation proposes that the government take 60% of all revenues above that price. The legislation could earn the country up to $570m in extra revenue.
The rise is expected to affect 10 foreign companies in particular, said Petroecuador, a state oil company, Occidental and Repsol of Spain are likely to be hit the hardest. Occidental has a 14% share in the recently built Ecuadorean transcontinental pipeline, Oleoducto de Crudos Pesados, and consequently saw a tripling of profits between 2002 and 2005. But these profits are under threat, and if legislation does pass unchanged, investors may move away. The company declined to comment on the controversy to International Tax Review.
Ivan Rodriguez, the energy minister, however, insisted that Ecuador can, and will, do business with companies from other nations, many of whom are "desperate to enter the country." Speaking to foreign correspondents on April 5, "If there are companies that do not feel comfortable remaining in the country, (following the tax hikes) we will have to look for alternatives," he said. Chinese, Russian, Indian, Iranian and Latin American companies are reported to have shown keen interest.
Diego Borja, who heads the finance ministry, and initially championed the legislation said: "This is the president's decision. I think that it is fine that the administration has talked to private oil companies about this law. The solutions are in working together, not being distant." Palacio's changes could include a removal of the planned 60% hike, staying with the current 50%.
The Venezuelan government's fights over tax with several big oil companies such as Chevron appear to be moving closer to resolution. On April 5, Jose Vielma Mora, the head of Venezuela's tax office, said that Chevron would pay VEB161 billion ($75 million) in back taxes.
The payment follows a tax bill for the US-owned company of $43 million, which was announced in March 2006. The bill has risen because of interest payments and additional fines on top of the original amount. The Venezuela tax head also said that Total had paid their tax bill after the authorities gave the French-owned oil company a day to pay in March.
Total owed the Venezuelan tax authorities about $99 million from between 2001 and 2004. The authorities said non-payment within 24 hours would lead to fines, office closures and property seizures.
Venezuela says that oil companies were paying a 34% tax rate, when they should have been paying 50%. As long as Venezuela tries to control its oil, it seems there pressure will remain on oil companies to contribute more to the nation's coffers. TY
