Latest update December 5th, 2024 1:40 AM
Nov 13, 2022 News
– IMF urges Guyana to plug loopholes to prevent abuse
Kaieteur News – In order for the Guyana Government to maximize the collection of revenue from offshore projects as well as avoid the slaughter of profits by oil companies, it must seek to have clear definitions of the types of costs or expenses oil companies can recover.
This is according to a key report by the International Monetary Fund (IMF). The Financial Institution was keen to note that it would be in the country’s best interests to outline in clear terms, what are the eligible costs that can be recovered under Production Sharing Agreements (PSAs).
The IMF said too that it would also serve the country well to have “regular” control of costs through audits.
The Fund said it is for the Guyana Revenue Authority (GRA) and the Ministry of Finance to work together on the aforementioned issue. The financial organization said, too, that this includes working together on the sharing of data of a fiscal nature, which are regularly submitted by the oil operator to the sector ministry, such as, but not limited to, the statements of costs to be incurred and cost recovery.
Other organizations such as Oxfam America have also called on the Government to urgently modify in the existing PSAs, those costs which oil companies are allowed to deduct.
The transparency body emphasized that there are certain costs which present a greater risk to Government revenue, and their eligibility may merit review. In this regard, it sought to warn Guyana’s Authorities that the payment of interest on a loan that an oil company takes from a related party is one such cost.
The company explained, “Oil and gas projects require significant capital outlays over their life, including the costs of drilling the well and constructing infrastructure to pump and refine the oil. Often, a related party will provide an oil operator with a loan for its project. But the interest rate on that loan is often highly unreasonable…”
Oxfam then cited a case involving Chevron Australia highlighting how companies may use such loan arrangements as a means of shifting profits offshore.
Oxfam noted that in 2017, the Federal Court of Australia upheld a US$340 million tax adjustment levied on Chevron Australia by the Australian Tax Office (ATO). This decision came about after the ATO discovered that a Chevron affiliate in the U.S. state of Delaware set an unreasonable interest rate for a loan to Chevron’s Australian arm.
And that was not the worst part. The court found that the loan was not a genuine transaction. It was simply used by Chevron Australia to artificially reduce its profits and tax payments in Australia, thereby shifting billions in revenue to its affiliate in Delaware.
Because of the scrutiny meted out by the Australian Tax Office, taxes were adjusted for 2004 to 2008, and the additional revenue of US$340M was recovered from Chevron.
With this as its premise, Oxfam warned that Guyana should not hesitate to review the costs which are eligible for recovery by oil operators.
Oxfam America has also called for the Government to amend the two-year deadline it has given itself in PSAs to cost audits for the petroleum sector. The transparency body said given the nation’s capacity deficiencies, this should be extended.
Oxfam America noted that auditing deadlines differ from one country to another. It noted that in Ghana and Kenya for example, the authorities there retain the right to complete audit companies within seven years.
In Peru, the limit for audits is four years. Even in the USA, the transparency body highlighted that audits are completed within three years.
Oxfam warned, however, that even a three-year deadline is not advisable for developing countries such as Guyana, given the limited financial and human resources that are likely to delay the audit process.
The organization said that it is equally important to keep an eye on record-keeping provisions in the petroleum contracts and tax laws.
It said, “Companies should be required to keep all their records in country for easy access by the auditors during the audit period. But once that period expires, it becomes very costly to access records and therefore practically impossible to audit them…”
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