Oil contract: the taxation article

Feb 12, 2025 Letters

Dear Editor

Article 15, otherwise known as the Taxation Article, is 4-pages long and is part of the 114-page PSA (Production Sharing Agreement), better known as the Oil Contract. There is both good and bad stuff there. Let’s take a look.

Article 15.2 says, (to paraphrase), Contractor [Exxon] is subject to the income tax laws of Guyana – and that includes the Corporation Tax Act of Guyana.

Now that is great stuff. It means the Oil Companies (Exxon, Hess, Cnooc) are liable for taxes to the State of Guyana. They must pay corporate income tax (the same thing called profits’ tax) on profits made in the host country, Guyana.

I will skip over Article 15.3. This article doesn’t seem to make any sense to me. Taxable Income is the income on which the State applies the applicable tax rate to determine the amount of tax that must be paid.

Now let’s go to Article 15.4. It reads: “The Minister agrees:

(a) That a sum assessed pursuant to Art 15.2 and 15.3 will be paid by the Minister to the Guyana Revenue Authority on behalf of the Contractor and that the amount of such sum will be considered income of the Contractor; [From where the Minister will get the money to pay to the GRA?]

(b) That the appropriate portion of the Govt’s share of Profit Oil . . . . shall be accepted by the Minister as payment in full by the Contractor of Contractor’s share of each of the following [tax] levies, whatsoever the applicable rate of such levies may be, which the Minister shall then pay on behalf of the Contractor to the [GRA]”.

Art 15.4 is very clear: the source of the funds to pay Oil Companies tax liabilities to the State is the “appropriate portion of [Guyana] share of profit oil”. Now we know this Oil Contract is asking the State of Guyana to pay OCs tax liabilities out of its [Guyana’s] profit-share. If you read this and conclude that OCs pay no profits’ tax or any tax at all to the State of Guyana, you are 100% correct. That conclusion is very clear from a faithful reading of Art 15.4.

Guyana’s profit-share is a bare 12.5 barrels out of every 100 barrels. It is unconscionable to ask host-country Guyana to pay Exxon’s tax liabilities out of its [Guyana’s] profit-share. If this is meant to be an insult to the intelligence of the Guyanese people, it certainly is.

This Tax Article gets worse. Much worse.

Article 15.5 states, “The Contractor shall provide the Minister with the Contractor’s income tax returns to be submitted by the Minister to the [GRA] so the Minister can pay income tax on behalf of Contractor.

“On such returns, the Minister shall note that he is paying the income taxes on behalf of the Contractor so that [GRA] can properly prepare the [Tax] receipts required under this Article 15.5”.

The clear takeaway from this Taxation article is that the Contractor [Exxon, Hess, Cnooc] pays no tax to GoG – but collects Tax Receipts. This is fraud. Plain and simple.

The Govt of Guyana, even though it knows this is fraud, must feel deathly afraid to be deemed non-compliant, if it chooses not to issue the Tax Receipts. GoG has been issuing Tax Receipts to OCs stating taxes “fully paid”.

What do the Oil Companies do with the Tax Receipts? As of today, we know that – thanks to Atty/Accountant Chris Ram – these Oil Companies have been taking tax deductions on their Income Statements for taxes (supposedly) paid to GoG and for which they have received Tax Receipts. We further assume they are using these Tax Receipts to claim tax credits on their U.S. corporate tax returns. This too, if it happens, is fraud.

It is time the GoG summoned the courage, feel emboldened and empowered – you are an Independent/Sovereign State, not a colony – to demand this Tax Article be revised. Exxon could have written into the contract “all taxes are waived for the life of the contract”, but the whole problem arises out of greed. Exxon wants its cake and eat too; wants Tax Receipts to take tax deductions on its income statements – but doesn’t want to pay for it. So, it resorts to writing a Tax Article full of tortured clauses to deceive.

Sincerely

Mike Persaud

(Oil contract: the taxation article)

oil companies, oil contract, Production Sharing Agreement, PSA, Taxation Article

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