UK extends windfall tax on oil and gas profits to 2029

May 19, 2024 News

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…as Guyana continues to waive US billions in taxes to Exxon

Kaieteur News – Oil companies operating in the United Kingdom (UK) will continue to face taxes on the massive windfall of revenue they are poised to receive, even as the government of Guyana (GoG) is opposed to the introduction of such fiscal policies locally and continue to waive billions in taxes from US oil giant, ExxonMobil.

It was recently revealed that the Chancellor has extended the Energy Profits Levy (EPL), the windfall tax on UK oil and gas profits, by a year to 31 March 2029.

The EPL was announced in May 2022 as a new tax on the profits of oil and gas companies operating in the UK and the UK Continental Shelf. When announced the rate was 25 percent, taking the headline rate of corporation tax on oil and gas sector UK profits from 40 percent to 65 percent. It was always intended to be a temporary measure that would be phased out when oil and gas prices return to historically more normal levels. It also had an original sunset clause of 31 December 2025.

At the Autumn Statement in November 2022, it was announced that there would be a 10 percent rise in the EPL rate to 35 percent from 1 January 2023 (taking the headline rate to 75 percent) and an extension of three years to 31 March 2028.

KPMG, a global network that provides tax, audit and advisory services reported that during the Spring Budget 2024, the Chancellor announced that the sunset clause for EPL would be extended by a year to 31 March 2029.

According to the BBC, the UK’s Revenue Authority received £2.6B between 2022 and 2023 from the introduction of windfall taxes.

In 2022, when the windfall tax was initially announced in the UK, the political Opposition had thrown its support for oil companies operating in Guyana to face taxes on the excessive profits being made on the country’ resources.

The Opposition’s spokesman on Oil and Gas, Elson Low told this newspaper that the political group holds the view that the PPP Government should specifically achieve this objective by increasing its royalty rate when Brent Crude (the benchmark prices for oil) moves pass the determined rate. He said, “Guyana must move to a variable royalty regime which increases royalty levels when Brent Crude is above a determined price. This should apply both to the existing Production Sharing Agreement (PSA) and the new model PSA.”

Previously, the Opposition made it clear that they believe in the “sanctity of contracts”. However, when questioned about its new position, Low explained, “It’s essentially a windfall tax…this change will only be due if we see abnormal circumstances in the oil market, which no one could have reasonably predicted when the contract was signed.”

Meanwhile, Vice President and Chief Policymaker for Guyana’s petroleum sector, Bharrat Jagdeo argued that such a requirement could not be applied here as it would be a breach to the ExxonMobil oil contract, signed in 2016.

The Vice President told members of the local media corps that the windfall tax that some countries are exploring only came after intense pressure from their populations.
He quipped that in some cases this was not being done willingly but was the government bowing to the demands of its citizenry.

The Vice President went on to explain, however, why this could not be replicated in Guyana since, “we are bound by a PSA (Production Sharing Agreement) with very specific terms on the taxation side.”

To this end, he suggested “if you change the taxation here, it’s considered a breach of the contract.”

Seeking to draw a distinction between Guyana and the ABC countries, Jagdeo suggested that those companies would have been operating for decades in those jurisdictions and as such would have come under the standard tax regime for the respective countries within which they operate.

According to the Vice President, under such a situation the parliaments of those countries could by way of legislation easily make the changes to institute for example a windfall tax.

He was adamant, this is the key reason the same cannot be done in Guyana if the administration did in fact go ahead and make the legislative changes; it would be considered a breach of the contract, “we would run afoul of the agreement.”

The Exxon contract and taxation

Guyana has been the driving force of the record profits registered by ExxonMobil, but due to the lopsided PSA it signed in 2016 with the Government of Guyana (GoG), the company and its sub-contractors are exempted from tax payments.

In fact, the oil deal provides for taxes owed by the company to be paid by Guyana. The PSA states at Article 15.1 that the Contractor as well as its affiliates shall not be subjected to tax, value-added tax, excise tax, duty, fee, charge or impost in respect of income derived from petroleum operations, property held or transactions except as specified under the agreement.

It goes on to state at Article 15.4 that the sum equivalent to the taxes owed by the company will be paid by the Minister responsible for Petroleum to the Commissioner General of the Guyana Revenue Authority (GRA).

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• extends, oil, tax, UK, windfall

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