Audit of the petroleum sector in Norway some experiences. Fredrik Aksnes

Transcription

1 Audit of the petroleum sector in Norway some experiences Fredrik Aksnes

2 Petroleum in Norwegian economy Investments Export Petroleum (26%) Petroleum (50%) Other Other GDP Government Revenue Petroleum (25%) Petroleum (29%) Other Other 2 Norwegian Petroleum Policies

3 Government take from petroleum 3

4 The Norwegian Tax Administration Ministry of Finance Directorate of Taxes Director General of Taxation Director General`s Staffs Operations Support Regional Department Legal Department Department for Innovation and Development Tax Norway North Tax Norway West Tax Norway East Tax Information Office Tax Norway Central Norway Central Office for Foreign Tax Affairs Tax Norway South Central Office for Large Enterprises Oil Taxation Office

5 The PetroleumTax System Operating income - Operating costs (incl. exploration and decommissioning costs) - Capital depreciation (linear depreciation over 6 years) - Financial costs (special limitations) - (Deficits from previous years) = Ordinary tax base liable to 28 pct. tax - Uplift (investment based extra depreciation, 7,5 pct. over 4 years) - (Excess uplift from previous years) = Tax base liable to 50 pct. tax Companies without taxable income Carry forward losses with interest - (risk free + 0,5%)*(1-0,28) Tax refund (pay out) of exploration costs Final losses can be sold or tax reimbursed from the state Oil Taxation Office

6 OTO Organization Oil Taxation Director Assistant Director Department Tax Audits and Economics 26 economists Department Legal and Administration 17 employees (14 lawyers) Section Petroleum Markets Section Analyses and Tax Audits Section Administration Oil Taxation Office

7 Assessment Process Desk Audits Tax assessment period 1. May 30. November Primary task in this period Tax returns by April 30th for the previous income year (calendar year) Tax list made public on December 1 (name of company, taxable income, tax) The Oil Taxation Board decides the assessment of each company in meetings. Staff divided into 3 teams responsible for a portfolio of companies Team work economists and lawyers 2-6 persons per company rotation of team members after 3-4 years Most of the staff participate in one or two focus groups Oil Taxation Office

8 Assessment Process Desk Audits Thorough examination: Today: about 80 companies assessed by the OTO Every company is examined every year Extensive correspondence: letters per (major) company Standardized letters made by teams of employees with special knowledge about various issues Tax returns vary from about ten to several hundred pages. Relatively few compulsory forms. Extensive report on each company prepared for the Oil Taxation Board (with the OTOs recommendation) Oil Taxation Office

9 Transfer pricing at the OTO Intra-Group Sales Is dry gas sales price set at arm s length price? Intra-Group Insurance («captives») Has the captive sufficient financial strength to insure? Insurance set at market price? Intra-Group Loans Interest rate margin reflects real trisk? Intra-Group Services Has the company really made use of the service? Did the company buy the service at arm s length price Tax Administration tittel på presentasjonen 8/12/2013 9

10 Desk vs. Field Audits Before: Many field audits, broad scope Today: Few field audits: 2-3 per year, specific issues Why has this changed? Experienced staff in oil companies that is generally cooperative. Information obtained through correspondence and meetings. Basically the quality of the accounts can be trusted: Mainly multinational companies External audits according to company regulations in Norway Partner audits Head office audits Internal audits No suspicion of fraudulent behavior or deliberately giving incorrect information Oil Taxation Office

11 The quality of OTO s work OTO s strategy to improve and ensure compliance: A highly educated and skilled staff Team work on complex issues Knowledge of the oil industry, technology, products and markets Integrate competence in legal and economics issues Thorough examination of the tax return and accounts annually Information to the companies on regulations and decisions Small organization focus on specialized tasks How can OTO be sure of the quality of its work? The decisions are made by independent boards Memos and technical calculations are controlled by (at least) one other employee OTO /the Norwegian State often win lawsuits Oil Taxation Office

12 The assessment process 2011: added income transfer pricing Oil Taxation Office

13 Number of assessment corrections Oil Taxation Office tittel på presentasjonen

14 Conclusions To collect the right amount of petroleum tax is a challenging task! Knowledge of the industry is indispensable for good results Strong professional competencies are needed in the oil taxation unit Intra-professional teams solve complicated cases best Desk audits is often more efficent and certainly cheaper than field audits Depends on the climate between the tax administration and the oil companies Tax Administration tittel på presentasjonen 8/12/

15 Reflections Questions?